for traders and investors. Prices for NYMEX Henry Hub Natural Gas futures and NYMEX WTI light sweet crude oil futures contracts (both traded on CME) are presented in Table 1 below. In particular, futures contracts expiring up to July 2024 are provided. We also know that on 19 July 2022 the spot price of natural gas was USD7.531 per MMBtu (one million British thermal units) and the spot price of light crude oil was USD103.45 per barrel. Table 1: NYMEX Henry Hub Natural Gas futures prices and NYMEX WTI light sweet crude oil futures prices observed on 19 July 2022 Another client is particularly interested in analysing the convenience yields implied in the gas and oil futures prices. In the following, you should assume that, on 19 July 2022, the monthly storage cost was estimated at USD0.55 per barrel for crude oil and at USDO.04 per MMBtu for natural gas, both payable in advance each month. You should also assume that the yield curve is flat and the risk-free rate is 3.7% per annum with continuous compounding. (c) Using the futures price data on 19 July 2022 in Table 1, calculate the convenience yield of crude oil and natural gas implied by each futures contract from August 2022 to July 2024 (i.e., 24 numbers in total). Again, please round off the time-to-delivery to the nearest month. Plot these implied convenience yields with the time-to-delivery on the x-axis (one curve for each commodity). (d) Comment on any patterns you observe in the convenience yields calculated in part (c) and explain to your client what the convenience yield is and what it tells us about the current oil and gas market. You might want to reflect on the current market conditions and/or the current forward curve in your discussion. Again, news announcements and online articles can be used to support your discussion. for traders and investors. Prices for NYMEX Henry Hub Natural Gas futures and NYMEX WTI light sweet crude oil futures contracts (both traded on CME) are presented in Table 1 below. In particular, futures contracts expiring up to July 2024 are provided. We also know that on 19 July 2022 the spot price of natural gas was USD7.531 per MMBtu (one million British thermal units) and the spot price of light crude oil was USD103.45 per barrel. Table 1: NYMEX Henry Hub Natural Gas futures prices and NYMEX WTI light sweet crude oil futures prices observed on 19 July 2022 Another client is particularly interested in analysing the convenience yields implied in the gas and oil futures prices. In the following, you should assume that, on 19 July 2022, the monthly storage cost was estimated at USD0.55 per barrel for crude oil and at USDO.04 per MMBtu for natural gas, both payable in advance each month. You should also assume that the yield curve is flat and the risk-free rate is 3.7% per annum with continuous compounding. (c) Using the futures price data on 19 July 2022 in Table 1, calculate the convenience yield of crude oil and natural gas implied by each futures contract from August 2022 to July 2024 (i.e., 24 numbers in total). Again, please round off the time-to-delivery to the nearest month. Plot these implied convenience yields with the time-to-delivery on the x-axis (one curve for each commodity). (d) Comment on any patterns you observe in the convenience yields calculated in part (c) and explain to your client what the convenience yield is and what it tells us about the current oil and gas market. You might want to reflect on the current market conditions and/or the current forward curve in your discussion. Again, news announcements and online articles can be used to support your discussion
