What Does This Mean for My Fuel Operation? One Word: Transparency. The NYMEX really took off as a major factor in the U.S. petroleum market back in the 1980s because it was the only place refiners, suppliers, traders, jobbers, retailers and procurement end-users had full access to see the value of a commodity at any given time. The transparency was generally not for real barrels of crude oil that you could turn into gasoline. Remember, this is mostly a paper market – physical delivery only occurs for 2% to 3% of all contracts on the current NYMEX. But, at that time, unlike today, there was no downstream price discovery. So, the futures market became a place where fuel buyers or sellers could go to find a cost basis for fuel supply agreements. This is why, when we talk about the NYMEX, we start to introduce the concept of “basis.” More on that later… Since the 80s, price transparency has extended to the spot market (the refinery level) and rack market (the wholesale level). We’ll dive deeper into those markets in the sections that follow. But, that clear level of transparency has always remained on the NYMEX. In addition, the exchange is regulated by the CFTC (Commodity Futures Trading Commission), adding a level of accountability to every 1,000-barrel, or 42,000-gallon, contract traded. There are two other key elements about the futures market: First, the trades are anonymous. Second – and most importantly – the exchange guarantees counterparty performance. No chance of an Enron-like implosion here. The paper market is used to hedge physical fuel purchases – kind of like insurance for prices rising or falling, to protect the companies holding contracts from losses related to their physical energy business. But, for our purposes right now, the critical point is that it is the primary building block of downstream gasoline and diesel pricing. Fuel Buying 101, Part 1: Futures and Spot Markets | Oil Price Information Service (OPIS) © 2020, all rights reserved 5