How to calculate historical liquidity premium crude oil deal
For an assignment, I need to estimate on the basis of market data, what would've been the liquidity premium on a certain Dubai crude oil forward deal as of 30th Jul, 2014.
Deal details: 12 mn barrels for one year calendar spread.
Also, there's a flexibility to adjust the volume every month as per that month's actual exposure. (i.e., while the deal talks about a notional vol of 12 mn bbl, the actual vol can be 11 mn, or 13 mn ... ). For this flexibility a 5-6 cents/bbl premium has been charged. I also need to validate on the basis of market data if this premium is correct.
Any help would be greatly appreciated.
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What does this actually mean? What is the pricing mechanism? What is the delivery mechanism.
It will depend upon how the crude is priced. In its simplest form this could be priced as an 11 kkb forward with a 2 kkb option but I suspect that pricing and logistic constraints mean it's not that simple.