HOW TO EFFECTIVELY USE THE TELVENT DTN FUEL BUYER™ SPOT TICKER
By Brian L. Milne, Telvent DTN refined fuels editor
©2011 Telvent DTN
HOW TO EFFECTIVELY USE THE TELVENT DTN FUEL BUYER SPOT TICKER
Fuel buyers have come to rely on the spot ticker in DTN Fuel
Buyer™ to know when to dispatch trucks to the rack, and how
to best set next day prices in the competitive landscape
where profit depends on correctly and constantly reacting to
the volatile price swings in the bulk wholesale market. The
spot ticker is updated in real-time with the bid/ask and actual
deals transacted in the market by experienced news staff in
continuous contact with traders, brokers, refiners and endusers.
The spot market, which refers to wet barrels traded in the
bulk wholesale market of the supply distribution chain that
runs from the refinery gate to the terminal, is the primary
driver in determining supplier postings at the rack. The spot
market establishes suppliers’ replacement costs for product.
In other words, a supplier will set the value of their product at
the rack for the following day, or even later that same day,
based on what it would cost in real-time to replenish the
gallons he or she is selling now.
Yet, there could be a brief disconnect in this relationship due
to local supply issues or pipeline scheduling, with the
country’s pipelines being the primary delivery medium that
moves product from refineries to terminals. It is critical for a
fuel buyer to understand how supply problems and cycle
schedules impact supplier decisions in how they set next day
postings.
WHY DO SUPPLY PROBLEMS & CYCLE SCHEDULES
MATTER?
for the futures contract — both of which are subject to wide
swings in value. The spot ticker represents the real-time value
of a product based on the financial market and the bulk
wholesale market, which are primarily determined by the
market’s opinion on the supply-demand disposition over the
coming days and weeks. That value is then used to set the
price at the terminal for products that will be lifted by tanker
truck the subsequent day, and sold at retail outlets over the
next few days. This market design has built-in the
replacement cost factor, which is the way commodities are
valued. In other words, you’re not setting price for product
you have already purchased, but rather you’re setting price
based on what it will cost to replace that product.
Brief periods where the pricing action by the spot market
may not foretell the next day’s posting change are caused by
mechanical issues. This almost always has to do with a
forward roll in either the pipeline cycle or the futures contract
used to index the spot value — or both — and typically
occurs when near-term supply in a region is tight.
WHY DOESN’T THE SPOT TICKER ALWAYS FORETELL
THE NEXT DAY’S RACK POSTING CHANGE?
Suppliers nominate space on a pipeline to move product
from the refinery to the terminal, with pipeline operators
typically moving fungible products in 10,000 and 25,000 bbl batches
during specific pipeline schedules referred to as cycles. This
is critical for a pipeline operator, who will deliver multiple
products on the same pipeline that are sourced from more
than one refinery or tank farm. Cycles typically run for ten
days, and supply on a pipeline will take several days once
injected into the line until it reaches terminals.
First, let’s take a step back to understand how the spot
market is priced.
Spot pricing is valued against the New York Mercantile
Exchange’s RBOB and heating oil futures contracts,
depending upon the product, trading in a basis to futures.
The basis or cash differential is typically indexed to the
nearby delivery futures contract, which will always be the
upcoming calendar month. So, conventional gasoline in the
Gulf Coast spot market might trade at a 5 cents/gallon
premium to nearby delivery NYMEX RBOB futures if demand
is strong for instance, or at a 5 cents/gallon discount if supply
is abundant. The distillate fuels, which include ultra-low sulfur
diesel, heating oil, and jet fuel, will trade
with a cash differential indexed to the heating oil futures
contract.
Let’s say product is short during the current pipeline cycle,
but a shut refinery unit is scheduled to return during the
subsequent pipeline cycle. The market's tight supply
disposition bids up the cash differential in the current cycle,
and a short squeeze develops just ahead of the scheduling
deadline that triggers a price spike. As the new cycle begins,
the refinery unit is returned to service. The cash differential
that spiked the day prior moves sharply lower as the short
squeeze ends, but suppliers at the rack continue to react to
the stronger cash differentials from the earlier cycle and hold
postings flat with the previous day. In this case, suppliers
were responding to the immediate supply tightness —
disregarding the new spot price which represents value for
product with delivery a week or so away.
So, DTN Fuel Buyer’s spot ticker is capturing both the
change in the cash differential for each product in the spot
markets across the United States, as well as the latest price
©2011 Telvent DTN
1
HOW TO EFFECTIVELY USE THE TELVENT DTN FUEL BUYER SPOT TICKER
Another more routine dynamic impacting the spot-to-rack
relationship is when the futures contract used to index the
cash differential rolls forward by a month, which usually
occurs alongside a pipeline cycle roll. A couple of spot
markets, such as Oklahoma’s Group 3 and the Portland,
Oregon markets typically wait until after the latest nearby
delivery contract expires and for the new calendar month
contract to take over as nearby delivery before rolling ahead.
However, this is not always the case for these markets, while
other markets will roll forward much earlier in the month.
Frequently, markets will stagger what products roll forward too.
This forward roll can have a dramatic impact on price when it
occurs, especially if it marks a seasonal change.
To illustrate this point, let’s consider a situation in which
suppliers are switching from higher Reid Vapor Pressure (RVP)
gasoline to the lower summer RVP blends. In our scenario,
supply of the winter grade gasoline is higher than is
preferred, and there is no desire to store the gasoline which
can’t be used for another several months, so suppliers slash
cash differentials to move out product and flush out inventory
levels. The cycle rolls forward to low RVP gasoline and
demand in the spot market is high, which causes the cash
differential against futures to strengthen dramatically. This
transition causes a sharp increase from discounted price
levels to premium values overnight, which are quickly tacked
onto postings charged at the rack next day.
SO HOW DO I BEST USE THE DTN FUEL BUYER SPOT
TICKER?
The DTN Fuel Buyer spot ticker is the single best source to
secure the latest accurate spot price for conventional
gasoline, RBOB, ultra-low diesel fuel, No.2
grade heating oil, and jet fuels in the major regional markets
across the U.S. Fuel buyers should, however, guard against
market conditions that don’t follow the traditional spot-torack relationship, which is why DTN provides side-by-side
tools that work in conjunction with the spot ticker. DTN Fuel
Buyer is a market intelligence suite that provides everything
from real-time price discovery to short- and intermediateterm analysis of what to expect. You can find news alerts of
refinery outages and low supply levels on major pipelines
that can — and do — have sudden impacts to price. DTN
Fuel Buyer is your dashboard to gauge when to dispatch
trucks and how to set price.
©2011 Telvent DTN
SPOT MARKET HIT LIST IN DTN FUEL BUYER
TOOL
FREQUENCY
Spot ticker
Real-time
Published price page
Five times daily
Published differential price
page
Five times daily
Market commentary
Two daily updates per
market at a minimum
Refinery news alerts
Real-time
Pipeline news alerts
Real-time
Futures quotes
Real-time
BEST PRACTICES — DTN FUEL BUYER
Look at futures
Located near the Spot Ticker in the DTN Fuel Buyer
dashboard, you can easily view the pricing action for the
futures contract used to index the cash differential. Use these
built-in tools to ferret out diverging pricing behavior between
the spot and futures markets. Is spot plummeting while
futures are rallying? What’s behind this?
DTN Fuel Buyer news alerts
Headlines single out the news important to you — drill down
for details on refinery outages, restarts, and pipeline
disruptions. They impact price!
Review market commentary
There are at least two reports published daily by DTN for the
major spot markets that tell you what’s driving price, as well
as noting cycle deadlines and when futures indexing rolls
forward. This critical information will assist you in guarding
against unexpected changes in next-day posting values.
2
HOW TO EFFECTIVELY USE THE TELVENT DTN FUEL BUYER SPOT TICKER
DTN Spot product price methodology: DTN gathers
spot pricing information by canvassing refiners, traders,
marketers, and brokers in each respective region for
products’ transactions closed in various open markets.
Spot prices are for prompt delivery.
• New York Harbor spot prices are primarily based on
prompt barge, in-position for Buckeye Pipeline
injection or delivered by Colonial Pipeline. Spot
prices are primarily FOB basis barge.
BRIAN L. MILNE, DTN REFINED FUELS EDITOR
Brian L. Milne has been involved in the energy markets for 11
years as an analyst, journalist, and editor, beginning his focus
with natural gas in 1996. Milne quickly expanded his
coverage to include the electricity industry during the move
to deregulated markets in the late 1990s. By 2001, Milne had
expanded his focus to include the downstream petroleum
industry, adding ethanol to his coverage in 2003. He is the
refined fuels editor for DTN, a leading business-to-business
provider of real-time commodity information services. Milne
graduated magna cum laude from Monmouth University in
New Jersey with a B.A. in History and an Interdisciplinary in
Political Science.
• Gulf Coast spot prices are primarily based on prompt
cycle Colonial Pipeline trading.
• Group 3 spot prices are primarily based on prompt
cycle business on the Magellan Pipeline.
• Chicago spot prices are based on prompt cycle
business on several regional pipelines, primarily the
Explorer Pipeline.
Milne and his team communicate with suppliers, brokers and
fuel buyers throughout each business day in the bulk
wholesale market in refined fuels. Their primary focus is price
discovery, uncovering what factors are driving the market,
and identifying trends. They also report on industry news
relevant to the downstream market, including legislative
action.
• Los Angeles and San Francisco spot prices are
primarily based on prompt cycle business on the
Kinder Morgan Energy Pipeline.
• Pacific Northwest values are primarily based on
Portland, Oregon spot prices for prompt delivery on
the Olympic Pipeline system.
©2011 Telvent DTN
3