Prices formula for oil transaction
Crude oil and petroleum products are priced at all stages of the oil value chain. Major pricing points are:
Wellhead price - Price or value of crude oil at the point of production, before any transportation
Crude gathering point price - Price of crude at a point where volumes are aggregated for shipping, usually at a seaport or major pipeline injection point
Refinery gate price - Price of crude delivered to a refinery, or price of product leaving a refinery
Spot market price - Price at the point where large parcel or cargoes physically trade hands
International crude and product transactions are typically in US dollars. The units for oil trade are typically either USD/barrel or USD/metric ton.
Dated Brent is a contract for delivery of a physical cargo of Brent (or a substitutable grade) on a given date.
Platts is one of the major oil price assessment agencies and industry news services for crude oil and refined products (along with Argus).
Platts provides daily price assessments for most major crude oil grades around the world and most of the major oil products in big trading hubs such as Northwest Europe, the US Gulf Coast, and Singapore.
Posted prices are prices, typically of crude oil, that buyers and sellers are willing to transact at. Posted prices are usually a starting point and reference index for negotiation of final transaction prices.
Price assessment is the determination of the prevailing market price for a crude oil or refined product at a point in time.
The most important price assessments are for the spot market for crude oil and products, as these are the best indicators of overall market conditions and are used as the benchmarks for many crude and product transactions.
Price assessment is performed by a number of price assessment agencies. The most important being:
Platts - Assesses prices for spot trades of most major crude and product grades around the world
Argus - Assesses prices for spot trades of most major crude and product grades around the world
OPIS - primarily assesses prices for rack (wholesale) and retail product markets
These agencies assess and publish prices on a daily basis based on observed transactions and/or player postings. Each has its own method for collecting transaction data, judging which transactions to include, adjusting for differences (e.g., quality, location, deal size), and reporting prices to the market.
Formula pricing is a method of crude or product pricing in which a predetermined formula sets the price of the commodity relative to other benchmark crude or product prices, with little or no month-to-month input from the buyer or seller. The formula is constructed so that changing market conditions are captured by changes in the benchmark prices used in the formulas.
In some cases, an extra constant is added that has to be set monthly by one or both of the parties. In this case, the goal of the formula is to minimize the role that the changing constant plays.