Our commodity prices are based on two recent futures contracts, such as the May and June contracts. When crossing from May to June, the price at the beginning of May will be in line with the May contract. By mid-May, May and June were half the price. The price at the end of May is based entirely on the June futures contract.
How our system works
The most recently expired contract (called the "spot contract") is "A 」
the second most recently expired contract (called a "forward contract") is "B 」
as "A" expires, the price moves from "A" to "B 」. When "A" expires, "B" becomes the new "A" and the new "B" is selected 」. This ensures a smooth transition between contracts.
Pricing transition
During the transition period, our price is 100% based on the spot contract "A" and gradually moves towards the forward contract "B.
Detailed Example of Natural Gas Overnight Adjustment Calculation
Note: This example uses the prices at the beginning of the July and August contracts. Rates vary based on the price difference between spot and forward futures contracts.
In the overnight adjustment calculation for natural gas, Phronimos Group need to consider the daily premium adjustment (DPA) and the management fee (AF).
Overnight Adjustment = DPA% + AF%
The management fee is calculated as follows:
Price x number of contracts x 0.01096%
The daily premium adjustment (DPA) is calculated as follows:
(B - A) / (T2 - T1) x 1 / A x 100
Among them:
T1 refers to the last due date (May 27, 2024)
T2 refers to the current maturity date (June 24, 2024)
A Refers to the spot contract price.
B refers to the forward contract price.
In this example, the T2-T1 is 28 days.
Sample data
(Source: Bloomberg)
Date
natural gas
spot month (A)
july (NGN24)
forward months (B)
august (NGQ24)
27 May 2024
2.744
2.744
2.791
The calculation of 100 long contracts (price 2.744) is as follows:
Daily premium adjustment (DPA):
DPA = (2.791 - 2.744) / 28 x 1 / 2.744 x 100 = 0.0612%
Management fee:
Rate = 0.01096%
Total overnight adjustments:
Overnight adjustment = 0.0612% + 0.01096% = 0.0722%
As a result, the cost of holding a long position overnight is 0.0722%, which includes daily premium adjustments and management fees. If you short natural gas, you will receive 0.0612% and pay 0.01096%, resulting in a net income of 0.0502%.
Therefore, the 100 long natural gas contracts (thermal units) are calculated as follows:
Size x Price x Total Overnight Adjustment
= 100 x 2.744 x -0.0722% = -$0.20
Among them:
Daily Premium Adjustment
= 100 x 2.744 x -0.0612% = -$0.17
Management fee
= 100 x 2.744 x -0.01096% = -$0.03
Based on the sample data, these percentages represent the daily fee or income from holding a natural gas position overnight. As the prices of the two contracts converge or divergent, the rate also fluctuates.
Phronimos Group hope this example will help you. If you have any other questions about our pricing, please contact us and Phronimos Group will be happy to assist you.
