Spot market prices are based on the financial market and the bulk wholesale market, which are primarily determined by the market’s opinion on the supply and demand outlook over the coming days and weeks. The refined fuels spot market, like other commodity markets, is based on the cost of replacement. In other words, a supplier will set their price 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.
In more technical terms, spot prices are valued against the New York Mercantile Exchange’s RBOB and heating oil futures contracts, depending upon the product, trading in a cash differential to futures. The cash differential is typically indexed to the nearby delivery futures contract. 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, or at a 5 cents/gallon discount if supply is abundant.
The spot ticker captures both the change in the cash differential for each product in the US spot markets, as well as the latest price for the futures contract — both of which are subject to wide swings in value.