Chapter 1: How to play – Introduction
Film transcript
Presenter
Whether it’s Olympic, Paralympic sport, global business, or academic success – there’s always more behind the numbers.
That’s why, as the official oil and gas partner of the London 2012 Olympic and Paralympic Games, BP has teamed up with the London Organising Committee of the Olympic and Paralympic games to create a new game that gives you a taste of the competitive world of business.
It’s great to have you involved – and now it’s my job to tell you what the game’s all about and how it works…
The Enterprise Trading Game
So – what’s the challenge?
Well, firstly you’re going to form an oil trading company. You’re going to have to work together as a trading team, and demonstrate the same skills as BP traders (more on that later).
The idea is to make a profit (a bigger profit than your rival teams, naturally), whilst demonstrating qualities that can help contribute towards success in business.
Trading oil in the real world
Oil is one of the most valuable commodities on the planet, and the market it’s traded in is one of the most high-pressured environments in which to do business, or play a game!
It’s easy to think it’s just used for fuelling cars planes and trains, but oil also provides energy for heating, cooking and manufacturing.
It is the raw material for plastics and is an integral part of the global economy.
Take this trainer for example – a lorry delivered it to the sports shop, a diesel-engined cargo ship carried it from China… where it was made from plastics produced in Germany using Middle Eastern oil. Oh – and the running track it will be used on is probably bitumen – distilled from, yes, crude oil.
So you can see why there’s so much demand for oil – but what about the supply?
Well, world events mean there isn’t always a steady stream of oil available to those who want it, so the price of oil goes up and down.
It’s the basic principle of supply and demand – I asked a BP trader to explain.
Dave Thompson (Global Commodity Head, BP)
Basically the more demand there is for oil, or the less supply there is, the price of oil may go up; but if demand goes down or supply increases – the price of oil goes down.
Presenter
And that is what makes opportunities for oil traders like you…
Like all businesses, trading crude oil involves buying at the lowest price and selling at the highest price possible – so how do you do it? By focusing on things that influence the price.
Tera Brouwer (Fuel Oil Trader, BP)
We watch the global news all the time. If an oil producing country announces an increase in supply, it is a clue that the price may fall soon. Or, on the other hand, if a big oil consumer like the USA announces a boost in their economy, we can guess there will be an increased demand. So the price may rise. It’s all about interpreting the global events and what they might mean for your business.
Presenter
Let’s look at some examples of how events have caused price rises and falls.
For instance political instability will often cause the oil price to rise, whereas an economic crisis may cause it to fall.
Introducing The Enterprise Trading Game
The Enterprise Trading Game is basically a year in the life of the oil market. Over several rounds you’ll read news bulletins of world events and will have to decide whether these events will make the price of oil go up or down, and therefore whether you want to buy or sell your oil. It’s going to be just like the real deal so prepare for some quick thinking! The first thing you need to trade oil is a company! Your company or team will be made up of:
• a Chair, who holds the team together and makes sure everyone’s voice is heard
• a Market Analyst, who leads on interpreting the news and advising the team whether to buy, sell or do nothing at all • a Trader, who does the actual trade by completing the trading forms and takes them to the Assistant Controller
on time
• and finally, an Accountant, who keeps tabs on the financial state of the team and knows if you’re making a profit or a loss.
Your team will also need a company name, so get creative with that! Each of these roles will benefit from different skills and qualities.
The ideal Trader is calm, can work efficiently and accurately under pressure – remember you’ll only have four minutes to make your trades.
Accountants should obviously be very good with numbers and pay attention to detail.
The ideal Market Analyst is very logical with good interpersonal skills – able to explain their thinking quickly to the team. And if you fancy yourself as a Chairperson you’ll need to be diplomatic, a natural leader and a good communicator. The team should probably agree with that description of you!
Above all, it’s key that you work together as a team and decisions are shared!
Chapter 2: How to play – The Entry-level game
Presenter
You’ll start with a set amount of dollars and barrels of crude oil stock.
Your aim is to make a profit by buying and selling oil as market prices change – so buy low and sell high!
But like any team, you will need more than good decision-making. You will need to be more determined than the competition; you will need to harness the strength of your team mates by respecting their views, you will need excellent analysis and attention to detail.
Steve Murphy (Business Studies Teacher)
Excellence is important in every different element of the game. From the overall decision, the big decisions that the students have to make, down to the excellence in their record keeping and their bookkeeping.
Respect is important because the students are working in a team and each of those individuals in a team will bring a different sort of level of expertise, a different level of knowledge, a different skill – that will be very useful as a part of the team.
They’re very determined to succeed. You can see that in the competitive nature, and you can see the way they sort of celebrate at the end.
Presenter
It’s no coincidence that these are some of the values behind the Olympic and Paralympic Games because they lead to success – in sport, naturally, but also, in business and life in general.
OK, it’s almost trading time! Here’s how the game works:
You’ll be shown news flashes of events that might affect the price of oil. Each new bulletin signals the start of a trading round and you’ll have to analyse the news to decide whether to sell, buy or not trade.
You must then get your trading form with your decision to the Assistant Controller. The trading rounds will be only a matter of minutes – so be focused and ready.
When the next round starts you’ll see whether the oil price went up, down or stayed stable – how that news event affected the market price, and whether your trading decision was a wise one, or not!
Think about how much risk your company should take – here’s a tip from a real trader.
Greg Wolf (Fuel Oil Trader, BP)
When prices are rising this is called a ‘Bull’ market, like a bull attacking. If prices are on a downward trend
– traders call this a ‘Bear’ market, like a bear. One thing’s for sure – you have to take (responsible) risks – but they have to be carefully calculated risks!
Presenter
So will you be ‘Bullish’ or ‘Bearish’? How determined is your team to succeed?
During and after the game a company meeting will be called. This is your chance to show how you are putting into practice those values of determination, respect and excellence, and reflect on your progress.
But how do you keep tabs on how much you’re spending, earning and how many barrels of oil you have?
The answer is accurate record keeping. In the real world, sloppy accounting has brought down many a company! As well as the Trading request forms that your Trader hands in at the end of each round, your Accountant will be recording all your transactions so you can see how you’re doing – and you must show the Controller your Financial report at the end!
Examples of completed forms can be found in your ‘Traders’ pack’.
And watch those trading limits – your team can only sell or buy if you have enough funds or stock. You’ll get a fine if you trade beyond your limits.
Your team can trade no more than 4,000 barrels at a time.
And make sure that you don’t have more than 4,000 barrels left after the final round, otherwise you will be fined $5 for each barrel over this limit.
Don’t worry if it still seems a bit complicated – you will have some practice rounds to get the hang of it. At the end – just like an oil trading company and its end of year profits – you’ll see how you’ve done against your competitors.
You’ll be measured on your team’s financial performance – but also on your conduct and values. Remember, what’s behind the numbers? Determination, respect and excellence!
So to recap, here’s how things are going to run over the next hour and a half:
• You’ll form a company, have three practice rounds and your first company meeting.
• Then there’ll be six ‘real’ trading rounds, four minutes each and then your last company meeting. Then it’s results time!
Final tips
So, before you get going, here are some final trading tips to keep in mind:
• You can only trade oil at the market price – at the top of each news bulletin screen.
• Discuss your market view, are prices going up, down or staying the same. It will help you make decisions. • Know your position at all times – that’s how much stock and money you have.
• Keep accurate records! • Buy low and sell high!
• Keep within time and trading limits (you can’t buy or sell oil if you don’t have enough funds or stock) or you’ll get a fine.
• Don’t trade more than 4,000 barrels at a time.
• Any stock left at the end of the game will automatically be valued at the final market price – so get rid of it in the last round if you think the price is going to fall! Make sure you don’t have over 4,000 barrels left – as this will incur a fine. Remember, to be a good trader you need more than just some good numbers.
Good luck and have fun!
Chapter 3: How to play – The Standard game
Presenter
Hello again! So you’ve decided you want to test your brainpower and play the Standard game?
Your mission is to work as an expert group of traders within BP to help supply the London 2012 Olympic and Paralympic Games with crude oil that could be turned into fuel for the Games vehicles. For the purpose of this game, you will be competing against other teams to make the most profit, whilst demonstrating the skills and values that can contribute towards success in business.
Where this game differs from the Entry-level game is that it’s more like professional oil trading.
Firstly, in the real world, crude oil is transported in very large ships which can carry between one and two million barrels of oil at a time. Because of these large amounts, oil is traded in units called ‘lots’ which are 1,000 barrels each. So as a BP trader in this game, you will also be trading in lots.
And not only that but you must trade in increments of 10 lots at a time – 10, 20, 30, 40 and so on! Remember every 10 lots equals 10,000 barrels, so your calculations will involve a few more zeros!
Secondly – You won’t be trading oil, instead you’ll be trading ‘oil futures’. What does that mean?
Tera Brouwer (Fuel Oil Trader, BP)
Well, futures are contracts to supply things at a certain price at a certain date in the future. They are used widely in business because, whether you’re buying or selling, they guarantee future supplies and financial commitments regardless of any market fluctuations.
Presenter
The main difference with trading in futures is that you don’t need any oil today to make a futures deal. You will have to make sure though that you’ve got enough stock to honour your deal by the time that day comes – in this case, at the end of the game.
So, we’re not giving you any oil to start you off. And here’s some more news: we’re not giving you any money either! So how will you do deals? Well, the thing about futures is that you won’t get the money for any sales until the supply date comes, and you don’t have to pay for oil futures you have bought until that date! So, starting off with nothing, you’ll be committing to buying and selling oil in the future but no money or oil will change hands until the end of the game after round six.
In terms of trading, it’s much like before. You read the news flashes and make group decisions, buy low and sell high. But this time because you’re not trading oil you actually have, there isn’t the same limit on the amount you can agree to buy or sell.
However, you must ensure that your market position is between 100 lots short and 100 lots long during the game. ‘Short’, ‘long’ – what does this all mean? Well – when a trader is ‘short’, that means they’ve sold more lots than they’ve bought and are therefore presently short of meeting their agreed contract.
When a trader is ‘long’, this means they’ve bought more lots than they have presently sold, but at some stage will need to sell this excess stock purchase.
So as a team, you need to ensure you are not long or short of over 100 lots during this game.
By the end of the game, you goal is to be flat – that means you need to have just enough oil to satisfy all of your future contracts. You can either do this in round six or you may choose to take a risk and wait until the final market price to sell any surplus stock you might have. But make sure you’re not short – otherwise you will be fined!
In practice, this just means a bit of extra book keeping: you’ll be keeping running totals on your commitments
to make sure there are no nasty surprises at the end. Sample Standard game forms can be found in your Traders’ pack, showing how to do it.
And don’t forget that determination, respect and excellence are still very much under scrutiny!
Well, I hope you’ve got your head round all that! Don’t worry if you haven’t yet as you’ll start off with some practice rounds to test out your skills.
