The spot market for crude oil and refined products refers to the trade of large physical cargoes or parcels in one off transactions for near-term delivery. While this market accounts for a small portion of overall crude and products transactions, it plays a critical role in setting prices for most other transactions.

Most buying and selling of crude and products happens under term contracts. However, most of these contracts rely on the pricing reported in the spot market as the basis for their pricing.

The buyers and sellers in the spot market are primarily crude producers, refiners, professional trading firms, and large distributors or consumers of oil products (eg large fuel retailers, airlines, fuel wholesalers).

Trades are typically done through direct one-to-on interaction of traders by phone, text, or through online exchanges. While the transactions are one-off deals, they tend to be highly standardized in terms of:

• Location – where the cargo or shipment will physically change hands

• Cargo shipping status – FOB, CIF

• Mode of oil transportation – A tanker cargo, a barge load, or a pipeline shipment

• Deal timing window – period in which the transaction must be completedPrices for these trades are assessed by third party price assessment agencies (Platts, Argus), and are generally published as a daily spot price assessment. These published spot prices are the basis that most term contract prices are indexed to.

Spot transactions are for exchange of physical crude or product volumes at specific location. Crude transactions are typically at the point of loading onto a ship or into a pipeline near the production region (FOB). Product transactions are typically at a major refining or transportation hub. Examples include:

• US Gulf Coast – centered around the Houston refining center, and sometimes including New Orleans, Corpus Christi, Lake Charles, and Beaumont/Port Arthur

• NWE (Northwest Europe) – Centered around the port of Rotterdam, and sometimes including Amsterdam and Antwerp (called ARA)

• Singapore

• New York Harbor - In or near the port of New York and New jersey

• Mediterranean – Including the ports of Genoa (Italy) or Lavera (France)