Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

[White Paper] How spot markets influence rack prices

1,807 views

Published on

Getting pricing right is a crucial function in the US refined fuels market whether a buyer or supplier, yet many in the industry are frustrated by its dynamics. This paper discusses the important features embroiled within wholesale refined fuels pricing, with the spot market the most significant factor in determining rack prices. There is a definitive correlation between spot and rack prices, and in order to better anticipate next-day moves it is imperative that marketers fully understand this relationship.

Published in: Economy & Finance, Business
  • We CJSC AGS-OIL Representatives to major refinery in Russia Federation with allocation for; D2DIESEL OIL GOST 305-82, JP54,JETFUEL, AVIATION KEROSENE COLONIAL GRADE, UREA 46%/PRILLS, LNG, LPG, REBCO, MAZUT100 GOST 10585-75/99, AUTOMOTIVE GAS OIL(AGO Our seller are reliable, responsible and capable to supply to buyer/buyer mandates product request. Interested buyer/buyer mandates should reply back to us asap to enable issue SCO to buyer/buyer mandates. We await your useful responses. Best Regards, Baev Sergey Alexandrovich Tel:+79267498795 Whatssap no:+79267498795 email:sergeyalexand@inbox.ru Skpe:sergeyalexand2
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Dear Buyer/ Buyer mandate We have Available FOB Rotterdam/Houston/Russia for JP54,D2, D6, JetA1 with good and workable procedure,whereby buyer will dip test in seller tank with proof of product. Kindly Contact us via (usmanovoilandgas60@mail.ru) for SCO. Regards Usmanov Alexie email: usmanovoilandgas60@mail.ru, usmanovoilandgas@yahoo.com skype: usmanovoilandgas
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • JP54 - D6 - JET A1 - D2 AVAILABLE ON CI DIP AND PAY FOB ROTTERDAM We are an official Oil & Gas Trading Company/Mandate working direct with Russian Petroleum Refinery which deals on Russian Petroleum Product such as JP54, D2, D6, JA-1 with good and workable procedure whereby buyer will dip test in seller tank with proof of product. Kindly Contact us via E-mail: { neftegazconsultant@yandex.ru } for SCO - Soft Offer. Below are products and quantities available for urgent lift JP54: Quantity: 500,000-2,000,000 Barrels JetA1: Quantity: 500,000-2,000,000 Barrels D2: Quantity: 50,000-150,000 Metric Tons D6 Virgin: Quantity: 400,000,000-800,000,000 Gallon Maksim Yaroslav EMAIL: neftegazconsultant@yandex.ru, EMAIL: neftegazconsultant@mail.ru Skype: neftegazconsultant https://neftegaz-energy-consultant.business.site/
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • RUSSIAN PETROLEUM PRODUCT AVAILABLE ON FOB AND CIF BASIS. We are an official Oil & Gas Trading Company / Mandate working with Russian Petroleum Refinery which deals on Russian Petroleum Product Service such as JP54, D2, D6, JA-1 with good and workable procedure.. We are expert in exportation of Russian Petroleum Product around the globe. Are you tired of time waste and fake seller or brokers? look no further contact us today for best and quality product available in seller's tank in Rotterdam. Maksim Yaroslav (Mr.) EMAIL: neftegazconsultant@yandex.ru EMAIL: neftegazconsultant@mail.ru Skype: neftegazconsultant TEL: +7 9265036551
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Hello Buyer / Buyer Mandate. We want to inform that we Can supply Aviation Kerosene,Jet fuel (JP 54-A1,5), Diesel (Gas Oil) and Fuel Oil D2, D6 FOB Rotterdam, we also have procedures for CIF: PRODUCT AND PRICE. Russia D2 Gas Oil Gost 305-82 Quantity: 50,000-150,000 Metric Tons. JP54 Aviation Fuel Colonial Grade 54./Jet A1 Quantity: 500,000-2,000,000 Barrels. D6 Virgin Fuel Oil Quantity: 400,000,000-800,000,000 Gallon. FOB CI DIP AND PAY (ROTTERDAM) TRANSACTION PROCEDURES CIF ASWP: Serious buyers only, my seller is ready to close this deal fast contact us below: Email: neftegazoiltrading@yandex.ru OR neftegazoiltrading@yahoo.com Skype: neftegazoiltrading Best Regards (Mr.) Vico Peißker. Skype: neftegazoiltrading Thank You
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

[White Paper] How spot markets influence rack prices

  1. 1. How spot markets influence rack prices Executive summary Getting pricing right is a crucial function in the US refined fuels market whether a buyer or supplier, yet many in the industry are frustrated by its dynamics. This paper discusses the important features embroiled within wholesale refined fuels pricing, with the spot market the most significant factor in determining rack prices. There is a definitive correlation between spot and rack prices, and in order to better anticipate next- day moves it is imperative that marketers fully understand this relationship. By Brian L. Milne
  2. 2. How spot markets influence rack prices Page 2 Refined fuels have a long supply chain that begins when oil is first discovered and extracted, to refining, transport, storage and final distribution to retail outlets. Each leg is critical in the conversion of crude oil from a raw material to a finished, usable product, which adds costs along each stage of the supply chain. These multiple stages also expose the product to potential disruptions that can and do affect costs. The various stages along the supply chain can also cloud our understanding of how refined fuels are priced and can cause confusion for marketers. A spot price, sometimes called a cash price, represents the real-time value of a particular product with fungible characteristics. All commodities have a spot or cash price. For refined fuels, it’s the price received or paid when ownership of fuel is transferred in the bulk wholesale market – from refinery gate to terminal. It is the primary wholesale market, with spot price assessments regional, based on established pipeline cycles and prompt barge deliveries. Spot oil product values are bid (the buyer’s price) and offered (the seller’s price) at a discount or premium to a benchmarked futures contract. It is these market mechanisms that determine the real-time fair value for gasoline, diesel fuel, jet fuel and heating oil in the spot market. Spot prices are the primary driver in setting wholesale terminal prices, known as rack postings, which are offers by suppliers for their product. Introduction What is spot pricing?
  3. 3. How spot markets influence rack prices Page 3 A rack posting is the supplier’s asking price for fuel at a distribution terminal. Suppliers set posting values to recover product costs in the bulk wholesale market, and to remain competitive with other suppliers. A rack posting reflects the buyer’s cost to procure product at the terminal known when “lifting” supply. The name “rack” is used because fuel is loaded in a tanker truck under a rack apparatus. The rack market is a secondary wholesale market and the last market in front of retail. As previously explained, spot prices represent the real-time value of a commodity. What this means is a spot value is incorporating the various dynamics of the broad and regional markets, including fundamental factors such as the supply-demand balance, seasonality features including peak demand, RVP changes for gasoline and refinery maintenance, and geopolitical issues. As such, a supplier looks to a spot price as identifying these market features and then sets a posting value aimed at recovering real costs and to establish a profit margin. A supplier would also need to consider competition among other suppliers at the terminal in setting its posting, as well as the supply-demand balance at the terminal and locally. Yet, by working off a spot assessment, a supplier has already identified fair market value for the product, reducing the risk he or she would price product at the terminal below costs. In other words, by using a spot assessment in determining a rack posting, a supplier is less likely to incur a loss. Our three-part chart below offers an example of how closely rack prices align with spot values, with the middle histogram showing the same day difference between a spot assessment and rack price. The bottom histogram plots the difference between the typical same day spot-to-rack differential and that differential if the rack posting was established knowing a day ahead of time what assessment the spot value would hold. In other words, by employing a one-day time lag, we illustrate what a rack posting would be if determined alongside the spot assessment. The difference between these two variables demonstrates the closeness in which rack postings are influenced by spot markets. What are rack postings? How spot markets influence rack prices
  4. 4. How spot markets influence rack prices Page 4 Since the spot market for refined fuels is indexed against the futures market, why not simply use the futures market? In the United States, physically traded refined fuels in the spot market are indexed against New York Mercantile Exchange RBOB and ULSD futures, with monthly contracts for the two commodities listed out for 18 to 24 months. The financially traded contracts are fungible, and their terms do allow for physical delivery. However, spot assessments are for prompt delivered physical products whereas a futures contract is for delivery a month or more into the future, creating a timing discrepancy. Spot assessments are also regional while a futures contract would reflect national and global influences. Moreover, the futures market includes speculation that might increase or decrease its value more than what the physical market would otherwise warrant. Since spot price assessments trade in a differential to the futures contract; i.e. premium, parity or discount, national and global issues are incorporated in its value while the differential fine tunes the price to regional issues. In other words, a well-supplied regional market might trade at a discount to the futures market while a tight market might trade at a premium. As a supplier, in the first market you would likely lose business at the rack if you only followed futures prices because you’ve overpriced your product, while in the latter scenario you’re likely headed for a loss. Most of the time however, whether buyer or seller you would simply leave money on the table. Although many factors can and do influence rack prices, they are most closely correlated with the spot market. By understanding the influences in the spot market and following the price, marketers can better understand their position in the market, anticipate next-day moves and make profitable decisions. Figure 1 The chart plots the spot price for CBOB gasoline in the Chicago market with the rack price for E10 gasoline in Cleveland, highlighting the close correlation between the refined fuels in the regional primary and local secondary markets. Conclusion Why not use the futures market?
  5. 5. How spot markets influence rack prices Page 5 ©2014SchneiderElectric.Allrightsreserved. About the author Brian L. Milne is an Energy Editor, Product Manager, with Schneider Electric's Cloud Services. Milne manages the refined fuel’s editorial content, spot price discovery activity and cash market analysis for Schneider Electric’s energy segment. He is also the editor for OilSpot, a weekly newsletter for fuel marketers, buyers and sellers published by Schneider Electric. Milne has 18 years’ experience in the energy industry as an analyst, journalist and editor, serving as Managing Editor for Btu publications and journalist with Bridge Information Systems America before joining DTN in 1999. His industry and market focus include natural gas, NGLs, electricity during its move to deregulated markets in the late 1990s, biofuels, and the downstream petroleum industry. Milne graduated Magna Cum Laude from Monmouth University in New Jersey with a B.A. in History and an Interdisciplinary in Political Science.

×