Trading in the highly integrated US/Canadian crude oil market is undergoing a profound transformation, driven mostly by the pull of exports off the Gulf Coast. But the shifts in flows, values and even the trade structures being used today are not well understood outside a small cadre of professional traders and marketers. Consider a few examples: Domestic sweet oil traded at Cushing on NYMEX is not West Texas Intermediate — WTI at Cushing has averaged a hefty $1.80/bbl over NYMEX for the past year. Most spot Houston and Midland crudes trade as buy-sell swaps. WTI in Houston trades at a discount to Corpus Christi and sweet crudes in Louisiana. Crude in Wyoming trades at a premium to Cushing. And the Gulf Coast is the highest-value market for Canadian heavy crude. This is not your father’s (or mother’s) oil trading game. Our mission in this blog series is to pull back the curtain on physical crude trading in North America, explain how it works, what sets the price, and who is doing the deals.
In observance of today’s holiday, we are revisiting a recently published blog discussing Crude Oil Trading Markets. If you didn’t read it then, this is your opportunity to see what you missed!
Crude oil markets in North America are dynamic, interdependent, and uniquely built around the mechanics of physical pipeline deliveries. At the same time, they can be convoluted, arcane and quite opaque, even while appearing to be transparent. Increasingly, the price of oil in North America drives global markets. But what determines the price of crude oils in North America? Sure, at the macro level it’s the economics of production on the supply side, refined products on the demand side, crude import/export flows, transportation costs, and crude quality specs. But markets don’t trade at the macro level. Individual deals done between buyers and sellers are the real price makers, and it’s the workings of those deals that are generally misunderstood by many market participants, even those who buy and sell large volumes of physical barrels.
Most physical crude oil barrels in North America move under term contracts with formula prices, which are frequently based in part on indices from price reporters like Argus and Platts. But where do they get their prices? The spot market, of course. Oil trade data is aggregated by price reporters from a variety of market participants and is used to provide a daily market assessment of an array of crude oil grades that trade at various locations across North America.
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About the song
“Living in the USA” was written by Steve Miller and appears as the fourth song on side one of the Steve Miller Band’s second studio album, Sailor. Released as a single in September 1968, it went to #49 on the Billboard Hot 100 Singles Chart. The song showcases Miller’s vocals and harp playing, which sometimes conjures up the ghost of Little Walter. Miller says he was inspired to write the lyrics to the tune by the trouble that led up to the riots at the Democratic National Convention in Chicago in 1968. For all you trivia freaks and gearheads, the cars you hear at the beginning and end of the song were twin small-block Chevy-powered rail jobs owned by Howard Cams and Lefty Mudersbach, recorded at Lion’s Dragstrip in Long Beach, CA. (Mudersbach won the race.) Now, somebody gimme a cheeseburger! Personnel on the record were: Steve Miller (lead vocal, harp, guitar), Boz Scaggs (guitar, backing vocals), Lonnie Turner (bass, backing vocals), Jim Peterman (keyboards, backing vocals), and Tim Davis (drums, backing vocals).
Sailor was recorded in August and September 1968 in Los Angeles, with Glyn Johns producing. Released in October 1968, the album went to #24 on the Billboard 200 Albums chart. It was the last album to feature contributions from original Steve Miller Band members Boz Scaggs and Jim Peterman. One single was released from the LP.
Steve Miller is an American musician and songwriter. He is the founder and only original member of the Steve Miller Band, which he founded in 1966. Miller started his professional career in the blues and moved toward a more pop-oriented sound during the mid-1970s. Les Paul, who was a close friend of Miller’s parents, is his godfather. After playing blues in Chicago, Miller, drawn by the growing music scene in San Francisco, relocated there in 1966 and formed the Steve Miller Band. He has released 18 studio albums, six live albums, 11 compilation albums, and 30 singles. Thirty members have passed through the Steve Miller band since its inception. Miller continues to tour.
