Refineries sell gasoline to wholesalers and sometimes directly to fuel retailers. Usually transported by truck, the driver pulls up to load their tanker at the loading rack. The 'rack', a common industry term for this wholesale fuel market, is the terminal where wholesale fuel is stored until it is picked up and delivered to the end-user. Here, the truck driver gets an invoice for the gas to be delivered and that invoice indicates the rack rate the client will need to pay, which is typically set once a day. There are approximately 400 racks in the United States.

For this daily pricing, OPIS wholesale gasoline and diesel prices are the standard reference for wholesale fuel transactions. The spot (bulk) basis is the relationship between a commodity on the NYMEX (MERC) and the corresponding commodity in the physical market. Problematically, the NYMEX futures prices don’t sit still. They react to various forces in the market, such as natural disasters and labor strikes, which can swing the first point on the number line up and down.

And that isn’t the end of the calculations. The relationship between futures and physical fluctuate as well. A refinery turnaround in one market can widen premiums to the NYMEX which will soar local spot prices. Simultaneously, slight weather changes in a single city can decrease driver demand, leading to differentials weakening in relation to NYMEX prices. The NYMEX could be up by 10 cents, but local differentials drop 20 cents and it would show gains while spot posts a loss.

In addition to the calculated prices, the rack price then adds transportation, overhead, and profit costs. The prices can vary from rack to rack and also take into account the distances between the retailer and the terminal’s locations.

With 400 racks and each wholesaler having their own pricing methods that relate to OPIS low, customer profiles, product differentials, and seasonal market occasions, there are hundreds of complex formulas involved in fuel pricing. The market dislocation described above demonstrates how it is vital that you track the spot fuel markets, rather than relying solely on the futures market. Gravitate’s Pricing Engine enables this pricing to be automated, replacing the formulas and manual, error-prone Excel-based processes.

Gravitate’s automated price generation, custom rules, and direct communication features make it easy to increase accuracy, develop prices faster, publish to customers with ease and increase margins and quote acceptance rates. Embrace the future with a personal demo today.

Source: OPIS

Image: Irving Oil