As crude oil exports have become an integral part of trade between the US and Canada, the market has evolved to accommodate this profound transformation. But the mechanisms used to set the price of many of the most important export grades are obscure and little understood outside a small group of professional traders and marketers. This is especially true for more liquid grades that use a trading approach known as “swap trading” or “diffusion trading,” in which volumes from regional hubs are priced into buy-sell transactions against domestic sweet crude in Cushing. In this context, “stock trading” does not mean trading on a regulated exchange. Instead, it means trading through an exchange of barrels between buyer and seller. In today’s RBN blog, we delve into some of the more complex aspects of this trading mechanism.
As we mentioned in Part 1 In this blog series, our mission is to pull back the curtain on physical crude oil trading in North America, explain how it works, what sets the price, and who makes the bids. In this blog post we discussed how most physical barrels of crude oil in North America move under futures contracts with formula prices tied to CME/NYMEX domestic and central prices based on price report releases , and how these posts get their transaction numbers on the physical site. commercial markets The complicated aspect comes in the way individual trades are structured in these spot markets.
A few things to keep in mind before diving into the details. First, the exchange-traded degrees in the market centers we are talking about are the most closely linked to exports. As shown in Figure 1, these include crudes traded in Midland, Houston, Corpus Christi and Beaumont, as well as grades other than NYMEX DSW (Domestic Sweet) traded in Cushing and, to a lesser extent, LLS (Light Louisiana Sweet) and Petrolis offshore Louisiana. (More on that Louisiana quirk in a minute.) Second, a number of other North American crude grades are traded on spreads with NYMEX DSW, but instead of using the swap trading mechanism , align with the NYMEX Calendar Month Average (CMA), a topic we covered last time Games of the future.. (We’ll also come back to that in a moment.) Third, exchange-traded markets are primarily voice-brokered, meaning that the buyer and seller are matched by a human broker who facilitates the trade, helps structure the mechanism of pricing and provides third-party documentation to business partners.
