What is Spot Gasoline?

When people talk about “spot gasoline,” they mean gasoline which has been sold under spot pricing, pricing which is designed for immediate payment and delivery. This is in contrast with futures pricing, a price which involves a contract for future payment and delivery. People can also talk about “spot crude,” in the sense of crude, unrefined oil which is sold under spot pricing schemes.

Both spot and futures prices are economically important, but consumers are often more immediately impacted by spot prices. When spot prices rise, gas stations must raise their prices to compensate, although when spot prices lower, pump prices often lag behind a bit. In days of particularly heavy trading when spot prices rise dramatically, it is often a topic of comment in the media, since so many people deal with gasoline prices on a daily basis.

Typically, spot gasoline consists of a blend which has been prepared for immediate commercial sale, although some gas stations may also include their own additives after delivery. Spot gasoline is offered for sale first to branded gas stations associated with specific oil companies, and then to smaller, independent stations. When spot prices are low, independents often get substantially cheaper spot gasoline, because the refinery just wants to sell the surplus, and this means that they can offer lower prices. As prices rise, however, independents can experience an phenomenon called “rack inversion,” in which their gas prices rise dramatically due to increased demand and limited supply, causing their pump prices to skyrocket.

A number of factors can influence the price of spot gasoline. Futures trading often plays a role, as companies look at projected gas prices in the future and adjust their pricing accordingly, and events like refinery fires, decreased refinery output, catastrophic weather conditions, and general increased consumer demand can also cause spot prices to rise. As a result, spot pricing can be extremely volatile, sometimes changing several times over the course of a single day.

For consumers who are curious, some financial papers list spot pricing in their price indexes, and spot prices are also available on industry websites. If you feel like following prices for an extended period of time, you may start to notice patterns in spot pricing, especially when you factor in external influences which can alter spot prices. Spot pricing also varies regionally, and you can often use spot pricing maps to figure out which refineries service which areas.