An Example of Spot-to-Rack Pricing in Action Atlanta is served by the Gulf Coast spot market. Let’s say today’s average spot price (remember, NYMEX +/- differential = price) for Gulf Coast ultra-low-sulfur diesel is $1.58/gal ($1.58 + $.0325 + $.0125). To get the diesel from the Gulf Coast to Atlanta costs a shipper approximately $.0325/gal. Various other charges amount to $.0125/gal. That means that the refiner’s total cost to get the diesel from their refinery to the Atlanta rack is $1.625/gal. Now, let’s say a day later the cost at the Gulf Coast rises from $1.58/gal to $1.63/gal – a 5ct/gal jump. Using the same math as we did above, the “spot replacement” cost jumped from $1.625/ gal yesterday to $1.675 today. You can bet that refiners (who look at the spot market all day) are not going to “eat” those 5cts/gal. They are going to raise their rack prices by some, or all of it, to absorb the change in their market cost. That increase is going to take effect sometime around 6 p.m. local time at the corresponding rack. So, Can I Do This Math for EVERY Rack in the United States? No. Approximately 220 racks link back directly to one of the seven U.S. spot markets. Rack markets such as Salt Lake City, Boise, Cheyenne, as well as locations in Kentucky and Tennessee, do not tie cleanly to a spot market, because they don’t sit directly on a pipeline. These markets have their own unique economics that refiners consider when adjusting rack prices. Fuel must be moved via alternate methods (trucking, water) from one rack to another. Some markets (like Baltimore) can even be tied to two different spot markets. But refiners chart most racks back to one of the seven spot markets, using that simple “spot + freight + other” equation. Fuel Buying 101, Part 2: Wholesale Rack Markets | Oil Price Information Service (OPIS) © 2020, all rights reserved 15