The Chicago spot fuel market is complex, with gasoline, diesel, jet fuel and kerosene sourced via several pipelines.
As we learned in Spot Fuel Markets Made Simple, a spot market refers to fuel that is physically traded off a pipeline or other bulk supply point. We say "bulk" because volume matters here, as spot trading is dependent on liquidity. Companies set large, expensive contracts off spot benchmarks, so underlying prices need to have real oomph behind them.
In Chicago, for example, OPIS editors confirm spot deals done for gasoline and distillate products with a minimum size of 10,000 barrels.
Let's throw it back a little to 2015, when this concept of "volume" emerged as a hot-button issue for Chicago spot fuel prices.
As we just mentioned, the Chicago region gets its fuel from multiple pipeline and storage locations, such as West Shore, Badger, Wolverine and Buckeye Complex. The market told OPIS in 2015 that only way to capture the true liquidity of the Chicago market was to include all supply locations under one range. That's the way the market actually trades, a wide canvass of industry and trade participants revealed.
To let you inside the mind of OPIS in general, it's always been our belief that no one should tell the market how it ought to do its business. It needs to be the other way around.
So, we listened to what our Chicago sources told us and updated our methodology to reflect new market realities. Deals confirmed for specified pipeline delivery or storage locations in the region, West Shore, Badger, Wolverine as well as Buckeye Complex, are all evaluated for assessment purposes.
You can see our full Chicago methodology right here.
In the past quarter, this inclusive methodology has helped us represent the full range of volatile trades that have taken place in the Chicago gasoline market, as location differentials exploded based on supply-demand imbalances. Check out this infographic for a real-world example of how our editors captured the market as it traded.
Remember, the spot market is critical to rack and wholesale pricing, as you can learn more about right here. But, here's one last visual breakdown, to give you an easy reference.
Dive deeper into how our editors cover these highly influential Chicago spot fuel prices by attending our free webinar: Pricing the Market the Way It Trades: OPIS Chicago Refined Spots March 1, 2018 2-3pm ET.