The ideal adjustment factor to calculate the price of WTI at Cushing
The Argus WTI differential (diff) to CMA is a market-oriented conversion factor often used in conjunction with the Nymex Calendar Month Average (CMA) to calculate the physical price of WTI at Cushing. It takes the exceptional liquidity of the Nymex futures and uses dozens of daily trades done by the market to convert the Nymex CMA to a prompt physical price.
Why the "Argus WTI diff to CMA + Nymex CMA" is the market choice
1. Leverage the world’s most transparent, liquid crude market.
Adding the Argus WTI diff to CMA to Nymex CMA allows your Cushing physical price to be based on Nymex futures – among the most liquid and transparent crude contracts in the world.
2. Capture the structure of the market.
The Argus diff to CMA captures the contango or backwardation in the market. Using the Nymex CMA without adding the Argus diff to CMA could result in leaving significant money on the table.
3. Free up the back office.
Save back office time and money by no longer calculating the “Nymex roll” and potential corrections due to misalignment between crude buyer and seller calculations.
4. Provide an audited third-party price.
Because the Nymex CMA + Argus diff to CMA formula is liquid, transparent and created by an IOSCO-compliant, third-party price reporting agency, it can be confidently shared with shareholders, board members and auditors.
5. Reduce the hassle and expense of the calculated roll.
Although not typically a concern, the importance of using a price reflecting a full day of trade activity was particularly evident on 20 April 2020, when the Nymex front-month crude contract settled at minus $37/bl.
In that May 2020 trade month, the Argus WTI diff to CMA was minus 6.22 — in other words, the delivered physical price of WTI at Cushing was $6.22/bl less than the published Nymex CMA for May. On that same day, the Nymex roll was minus 7.89.
In that May 2020 trade month, the Argus WTI diff to CMA was minus 6.22 — in other words, the delivered physical price of WTI at Cushing was $6.22/bl less than the published Nymex CMA for May. On that same day, the Nymex roll was minus 7.89.
Why the difference of 1.67?
Because the Nymex roll only considers the month-to-month spreads at the 1:30pm settlement time, which was, on 20 April 2020, coincidentally when the price dive on May crude futures was at its most severe. Meanwhile, the Argus diff to CMA price considered all trades done throughout that day.
Frequently asked questions
How can this calculation be used in a contract by a Midland WTI seller?
To set their price at Midland, many traders of WTI at Midland add the Argus Mid/Cush differential to the Nymex CMA + Argus diff to CMA
CMA Nymex for the month of delivery + the trade month average of the daily Argus diff to CMA + the trade month average of the daily Argus WTI Midland differential
Does the Argus diff to CMA accurately adjust the CMA Nymex to the prompt physical price of WTI at Cushing?
One good visual of how the Argus diff to CMA works is seen in the relationship of the WTI CMA price published by Nymex, the Argus diff to CMA, and the day’s prompt physical WTI price at Cushing. The screen shot below (from the daily Argus Americas Crude report price tables) shows that adding the Argus diff to CMA to the published CMA Nymex yields a price within a few pence of the day’s prompt physical price.
As shown from Argus Americas Crude
As explained above, there can be a slight difference between the price set by the prompt Nymex settlement price at 1:30pm central time (top red bubble) compared with the price resulting from adding the average of the full day’s “roll” trades (bottom red bubble) to the CMA Nymex.
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