CMA

On April 20, that fateful day in crude oil markets when the CME May contract for WTI at Cushing collapsed to negative $37.63/bbl, the number of contracts involved in the chaos was relatively small. So you might think that most producers sat on the sidelines, watching Wall Street paper traders writhe in stunning financial pain. But not so. Almost all producers saw their crude prices that day crashing in exactly the same magnitude. That’s because the daily price of the CME WTI contract is part of the formula pricing used in a very large portion of crude oil contracts in U.S. markets, both directly and indirectly. There are two formula mechanisms that are commonly used in crude oil sale/purchase contracts that are responsible for that linkage: the CMA and WTI P-Plus. These arcane pricing mechanisms are complicated, but in order to understand U.S. crude markets, it is critically important to appreciate how they work. Today, we continue our deep dive into crude oil contract pricing mechanisms.

They are unsung heroes, the guys and gals who get in early, stay late, and are usually working odd hours on the weekends. They resolve issues before they arise, solve complex problems when they do pop up, and are always working the phones to get the next hot piece of intel. No, we’re not talking about the new cast from Season 2 of “Jack Ryan,” and no, it’s not the kids from “Stranger Things.” The keyboard warriors we’re referring to are crude oil schedulers. They’re at the forefront of the daily logistics taking place at truck injection points, gathering systems, and takeaway pipelines from Western Canada down to the Gulf Coast (and around the rest of the world as well). As more and more new pipelines get built out in places like West Texas, it’s important to revisit the basics of how crude oil moves and the role that crude schedulers play. Today, we bring it back to the roots of crude oil operations and shine some light on an underappreciated group of crude oil operators.

The CME NYMEX WTI crude futures contract is the underlying benchmark in nearly all US domestic crude price contracts. Differences between futures and physical trading arrangements make pricing physical WTI barrels complex. Two formula mechanisms are commonly used in physical transactions that link directly to the NYMEX settlement prices – the CMA average and WTI P-Plus. Today we conclude a two-part look at WTI spot crude pricing.

NYMEX WTI is the most liquid commodity future in the world. So far this year the exchange traded an average 125 MMb/d in the prompt contract alone. The NYMEX crude price is so ubiquitous that it also underpins the domestic US crude spot market. Differences between futures and physical trading as well as the delivery mechanism that links the two markets, make pricing physical WTI complicated. Today we begin a two-part look at US spot crude pricing.