Looking at 2 different royalty statements for April from 2 different operators they both show selling oil on 2/15/15 for $48.94 per barrel.
The WITI Cushing spot price on that date was $53.56.
Got this month's statement from one operator showing oil sale on 3/15 for $45.32
Could someone explain the discrepancy between spot pricing and the pricing that our royalties are based?
Thanks
Linda
Linda, You probably are being paid oil futures contract prices, not oil spot prices. WTI futures prices of oil are traded in lot sizes of 1000 barrels (42000 gallons), but future prices are the prices paid for the contracts promising delivery of oil at a future date. The spot price of oil is the value of oil in the marketplace right now as if it were being bought and exchanging hands right this minute, but that's impossible to do because oil is traded in such huge amounts of lots that it is hard to perform an immediate exchange. So, the futures price of oil is the expected value of the oil using the oil's current spot price to help determine the futures contract price. Therefore, oil spot prices do affect oil future prices, but the two are not the same.
Linda,
It could be the WTI future prices they are trading on or It may have to do with the grade of the oil or who is purchases it. Look at OCC, completion report #1002A and see if it shows the grade.
If the grade is the same, call the companies and ask them to explain why they are paying different amounts. You will be surprised at their reason for paying like they do. Good luck.
Virginia, You are right, the oil and gas company producing the wells can have an affiliate that gets a better price than the traders. Some companies are integrated and own their refinery that gets a better price also.
Thanks for the replies..
It seems very unusual to me that two totally different operators are selling on the same day and getting the same price unless that was the going future rate for that date.
Any of you who get royalty payments showing dates and prices of oil prices?
I know Devon just shows the month and year.
Linda,
Devon does show the price, but if your are signed up with oildex, you have to print it out to see it.
Look under unit price. Also, when you said sold on 3/15, do you mean prod date or check date? Oil is sold all month long, but you get your check about 2 to 3 months later. I got a check from Devon on 4/15, but it was for oil sold in Feb, Nov, Dec. & Jan. Nov price was 77.502 & 77.319, but Jan price was 47.866 & Feb 50.963. A lot depends on the day and time it is sold. Kind of like the stock market, it's all about timing. Several of the other companies have sold about the same time, but none have the same price. Usually Phillips 66 has the best price, but in Feb, they were a dollar lower.
Here's EIA Cushing OK WTI spot prices historical and current to May 4, 2015. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=d
Ms. Barbour,
If you read your lease you are required to be paid on what the oil company receives. With all due respect to those well meaning contributors, the WTI price is FOB Cushing, OK. That is not what the refineries pay. This is not what oil marketers pay.
Your royalty is not set on the spot market FOB (that means free on board) Cushing. Your royalty is based on what the Operator receives. WTI is useful commodity standard for trading oil futures and swaps and other financial maneuvers on Wall Street.
If you go back on your checks and look (and everybody else do the same), you will find that there may be some correlation between what you receive and WTI spot. HOWEVER, with the current supply gut, we are in a true buyers market. Our local market has collapsed as of February oil sales.
We no longer get paid a premium price where I live. The refiners attitude is "Go drive down I-10 until you find a refinery that will give you your rate." There is just too much US oil on the market.
Best
Buddy Cotten
Buddy, If you read my first well meaning post, it stated that being paid future contract prices are Not the Spot WTI Cushing FOB Prices. With all do respect, please thoroughly read all the 'well meaning contributors' posts, before you reply. Also, most often, when we hear about the price of oil it is in the context of "front-month" oil futures contracts trading on the New York Mercantile Exchange. That contract covers the price of West Texas Intermediate-grade oil (39.6 API gravity) , delivered on a specific date within the next month to the transfer hub in Cushing, Oklahoma, and it is the de facto reference for oil prices in the U.S. Here's the many types of oil contracts, as you can see, there are way to many to discuss each one on this forum. http://help.sap.com/saphelp_oil46csp2/helpdata/en/54/490d3a5bba3c44e10000000a11405a/content.htm
Now I am confused. I always thought the price has something to do with the grade of oil. If I check all my checks from different companies, I never have the same price on the same day, so I figured the grade was different. I also thought the price was set the day the oil was sold, I didn't know they sold it on futures.
Virginia, Your oil is sold under contract at that contracts price, like selling a car, but in todays' market oil prices are very much in correlation to oil futures contracts prices. But, spot price and future price is not the same, so you probably will never receive an honest to God spot price for your oil.
Because, the spot price is what you would fork over to take physical delivery of oil right this minute today. The EIA defines spot price as: "The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased "on the spot" at current market rates."
It's hard to buy oil at the exact spot price, so we go forward in time and that's called front-month futures contract price and it's the closest thing to the actual price of oil anyone in the US can get right now.
For instance, most of long term contracts are based on what we think the future price of oil will be. So, operators do very much use spot prices and future contract prices to help calculate what price to enter into a actual oil sale contract. For instance, most refiners purchase oil with the help of long-term contracts, either one-off privately negotiated contracts or contracts from an exchange.
Martha,
Thank you.
I thought I did understand what was taking place and that is some of the reason we never get the same price.
Thank you.
Virginia, We are not in the good ole day's supply and demand environment and may not be again for a long time, so the way we determine the price of oil is being changed. The Saudis have been complaining for a long time that the US is setting prices, that's why the Saudis are not going to drastically decrease production in order to raise the price of oil. They know there really isn't a over supply of global oil, because the US and most developed countries, like Saudi Arabia, have really had their peak oil production and can do nothing but decline from here on out. That doesn't mean the world is going to run out of oil in the next 100 years. It means we are going to have to work harder and harder and go deeper and deeper to get it and we may never have another golden moment where we are producing as much as we can possibly produce for an extended period of time. China, India, Africa and other emerging countries have oil right there under their countries, but they don't have the tremendous technology and infrastructure that the US has to drill, produce, refine and/or deliver oil at prices they can afford. That's why the price of oil will stabilize, then go up again until we find another energy source that is safe and less expensive. Once all the countries in the world have industrialized and are running up to snuff, we could have a little oil shortage problem, But, there's always Nuclear Fission.
Martha McMorries said:
Virginia, We are not in the good ole day's supply and demand environment and may not be again for a long time, so the way we determine the price of oil is being changed. The Saudis have been complaining for a long time that the US is setting prices, that's why the Saudis are not going to drastically decrease production in order to raise the price of oil. They know there really isn't a over supply of global oil, because the US and most developed countries, like Saudi Arabia, have really had their peak oil production and can do nothing but decline from here on out. That doesn't mean the world is going to run out of oil in the next 100 years. It means we are going to have to work harder and harder and go deeper and deeper to get it and we may never have another golden moment where we are producing as much as we can possibly produce for an extended period of time. China, India, Africa and other emerging countries have oil right there under their countries, but they don't have the tremendous technology and infrastructure that the US has to drill, produce, refine and/or deliver oil at prices they can afford. That's why the price of oil will stabilize, then go up again until we find another energy source that is safe and less expensive. Once all the countries in the world have industrialized and are running up to snuff, we could have a little oil shortage problem, But, there's always Nuclear Fission.
Buddy, The US, on average, uses 20 million barrels of oil per day. The so called oil US glut, caused by shale production, is in excess of only 1 million barrels per day . Summer vacation driving can increase US oil consumption by almost 1 million barrels per day as shown in this EIA report http://www.eia.gov/todayinenergy/detail.cfm?id=6010 After the summer of this 2015 year, we could have an oil shortage. In economic forecasting, any surplus of oil lasting less than 6 months is not considered an oversupply or glut and Bank of America agrees. http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html
Dear Ms. McMorries,
I suppose that we will have to agree to disagree. But the proof will be in the pudding. February futures averaged (for March delivery) $54.00, approx. March futures for April delivery averaged approx $51.00 per bbl.
March WTI spot price averaged $47.82 and April WTI spot price averaged $54.45.
I will still stand by my contention that the price received by the operator will be what they sold it for. It could be more or less than either price. Generally lower, unless you are selling to a local market. In my opinion, we are still in the good old days of supply and demand.
I hope that the prices continue to generally increase, but I do not see that happening at the refinery at this point. In my opinion, which is shared by many commentators and EIA reports, we have too much crude oil in inventory.
The certainty of your statements above lead me to believe that you know much more about crude oil marketing than I do. And I know almost nothing. Almost all of my experience is on the upstream side of the business.
SO, I hope that on this thread people post what they actually were paid on March oil. I will post representative averages by state from my royalty checks. I will even upload the check stubs so that people can verify if they do not believe me.
Best
Buddy Cotten
Futures prices were higher than her pay stub. Can you explain that for us?
Buddy Cotten
Linda, You probably are being paid oil futures contract prices, not oil spot prices. WTI futures prices of oil are traded in lot sizes of 1000 barrels (42000 gallons), but future prices are the prices paid for the contracts promising delivery of oil at a future date. The spot price of oil is the value of oil in the marketplace right now as if it were being bought and exchanging hands right this minute, but that's impossible to do because oil is traded in such huge amounts of lots that it is hard to perform an immediate exchange. So, the futures price of oil is the expected value of the oil using the oil's current spot price to help determine the futures contract price. Therefore, oil spot prices do affect oil future prices, but the two are not the same.
Buddy,
I find it interesting how we are getting a price for oil nowadays. I checked all my oil checks and the ones that I got for last month were for Feb oil and range from 49.23 to 49.46, none were the same. Even the same companies prices were different on the same day but on different wells.
This month I don't have all my checks, but the ones I have for March oil were from 45.59 to 45.22, again different wells and different companies. So I have never got WTI spot price, but I have been told in the pass it had something to do with the grade of the oil. Yet I am suppose to have a very high grade.
I still believe some of the price is determine by the contract as I have had producer change purchaser and the price went up.
Dear Virginia,
Of course there is a purchase price contract. My whole point is that the price reflected on the royalty check is based ultimately what the posted refinery price is on the day of delivery – not spot price and not futures.
That explains why two different wells with identical grade of oil and sold to the same purchaser will have different average prices over the period of a month. The posted (not spot) price changes daily. Some wells might only sell once per month and their monthly sales price is based on that one sale. Another well, right next door might have oil trucks make several trips per day.
WTI spot price is FOB Cushing. The refineries can bid that price up or down depending on their needs. No matter what anybody else says, that is a microeconomic supply and demand. Until February oil, I was getting Brent pricing because I was selling to a local refinery and they needed my oil.
But, if someone has more downstream experience, that’s fine. However, this whole discussion is becoming tiring to me. And I did completely read all posts in detail. I just don’t agree. And some think I was picking on them. I don’t try to pick on anybody, especially if they are well intentioned.
Virginia and Buddy, Right now, the forward price of oil is the spot price plus the cost of storage. Speculators will keep buying and storing vast quantities of oil in order to create a shortage. That's microeconomic pricing manipulation. The US oil industry's main storage facility at Cushing, Oklahoma is almost at full, thanks to US refineries stopping production for maintenance in February, so, overseas storage is being bought. Even if we disagree, we have to remain vigilant and try to understand what is happening. Good Luck to Everyone and Happy Mother's Day to all the wonderful mother's on this great forum!