Introduction Buying fuel is confusing even for seasoned pros. The petroleum market features a slew of specialized fuel blends and no one-size-fits all requirement for what you can use – or where or when you can use it. Whether you are new to the fuel industry or have been around for a while, the words “spot,” “rack” and especially “basis” are terms that confuse even the most veteran buyer. There’s a good chance you or someone on your team may not be 100% sure what these words mean. Chances are you already have a fuel contract with a supplier in place. Maybe you are looking to set one up or modify one that already exists. Without a firm handle on the difference between futures, spot, rack and retail markets, there’s a good possibility that you: • Are unaware what the “cost basis” is in your fuel agreement • Are not purchasing the right fuel for your area or are paying too much for the fuel you buy • Don’t understand what factors are making your fuel costs go up and down Let’s clear up some confusion with a basic guide to pricing gasoline and diesel. Much of what you will learn here also applies to jet fuel, LPG and renewables. Fuel Price Influence Chain NYMEX SPOT MARKET RACK MARKET RETAIL MARKET Paper market, Physical market, Smaller olume market, Street price for gasoline influenced by high olume, located o­en located off a and diesel. ‚ollo s rack big-scale regional at refinery hubs. pipeline. ‚ollo s spot pricing, though reaction and international eacts to M and market direction, chang- time is usually factors. regional supply ne s. ing at ƒpm each day. t o„three days later. The price of gasoline and diesel that a consumer pays at the street level is determined by moves a little further upstream in futures, spot and rack fuel markets. These markets influence each other to culminate in the price you pay at the pump. By the time you have finished reading this guide, you will understand each one of those markets. Fuel Buying 101, Part 1: Futures and Spot Markets | Oil Price Information Service (OPIS) © 2020, all rights reserved 3 © OPIS by IHS Markit