Price Settings

Oil and oil products are the most important traded commodities worldwide.

Market prices for crude oil and refined petroleum products are generally set on the basis of reference prices determined by trading among market participants both on the physical market and on commodity futures exchanges.

Futures exchanges provide great transparency to price formation and this is one of the main reasons which has led them to become more and more important over the years.

The two most important futures exchanges are Nymex (New York) and ICE (London):

• on the Nymex you can trade the WTI crude oil contract, the gasoline contract and the heating oil contract
• on the ICE it’s possible to trade the Brent crude oil contract and the gasoil contract

The quotations of these crudes and products are widely used as a reference for many other price settings.

Price definition on the physical market is much less transparent and requires a systematic market scan by independent entities, typically press agencies (such as Platt’s), who collect trade data from market participants and make a daily price assessment both for crudes and products and for all the main trading areas around the world.

When you are buying or selling a crude or an oil product, thus, you can decide to define the price in one of the following ways:

1. agreeing with your counterpart a specific fixed price
2. using the average Platt’s quotation over a certain period for a certain product (with the possibility to add a predetermined premium or discount)
3. using traded futures as a reference or, also, as settlement instrument instead of cash (the so called EFP: exchange for physical)

Last update 20/05/08