On the other hand, prolonged rain in, for example, the Chicago spot market, doesn’t just dampen spirits – it dampens local driver demand. That can lead to differentials weakening in relationship to the NYMEX and skew the cash side of the eqation down. So, sometimes the NYMEX can be up 10cts on the day, but a particularly bullish bulk given spot market volatility that is separate from futures, could outpace it – gaining by, say, 20cts. Or, if the NYMEX is up by 5cts, but local differentials drop by 10cts, the NYMEX will show gains while spot posts a loss, as indicated in the number line below. This is often referred to as “market dislocation.” NYMEX starting price Bottom Line: You can’t rely on the futures market to tell you the whole story of what is going on with physical prices. You need to track the spot fuel markets. On top of this, the NYMEX trades all day, settling at around 2:30 p.m. Eastern Time. The spot arena also sees deals all day long. Price reporting agencies (PRAs) – OPIS being one of them – spend a lot of time and effort tracking spot markets to make sense of the constant push and pull between futures and physical trading. For example, a typical PRA takes the NYMEX 2:30 p.m. settlement price and applies the day’s spot differentials to it to create a price “range.” The middle price of that range is the spot average, which is used to set industry supply contracts. Whichever PRA you look at, it’s critical to find a price service that keeps tabs on the peculiarities of each market – things like spec requirements and seasonal fuel slate changes, as these factors become even more key the further downstream we look. Fuel Buying 101, Part 1: Futures and Spot Markets | Oil Price Information Service (OPIS) © 2020, all rights reserved 11