At present, the pricing system adopted in the international oil market is called "market-related pricing system", which originated from 1986- 1988 and has existed for more than 25 years. The most important feature of the market-related pricing system is the setting of the so-called benchmark crude oil. At present, there are three benchmark crude oil prices in the world: WTI crude oil, Dubai crude oil and Dubai-Oman crude oil. For China's strategy to compete for international energy pricing power, it will be one of the important goals to create its own crude oil benchmark.
The process of crude oil pricing by "market-related pricing system" is as follows:
In the first step, the futures market of benchmark crude oil (WTI and Brent) has set a "price level". The futures market is the most open and transparent trading place, so its price is the most "objective" in the whole pricing system. The "objectivity" here does not mean that the futures price must accurately reflect the fundamentals, but that the futures price is a pure trading result, which is directly reflected on the display screen of the exchange without artificial modification.
Secondly, based on the "price level" set by the futures market, the paper goods market will conduct various "price difference" transactions, among which the price difference is mainly between the market levels. Take Brent crude oil as an example. Brent's spot price (DatedBrent) and Brent's forward price (BrentForward) are linked together through an OTC swap contract called CFDs, which is actually to trade the difference between them. Brent forward and Brent futures are linked through EFP, and the quotation is also the price difference. Add these two price differences and "price level" to get the spot price. The market ensures the rationality of the price difference through the "arbitrage mechanism".
Third, the "price reporting agency" evaluates the spot price. Because the spot trading in the oil market and the OTC derivatives trading in the bill market are opaque, it is necessary for the "price reporting agency" to "evaluate" the trading results. The two most important assessment agencies are Platts and argus. According to their own valuation methods, they reported various "price differences" by observing the transactions reached, and then combined with the "price level" set by the futures market, they reported the prices of commodities. Price reporting agencies have great power, and whether they have enough "objectivity" has aroused widespread concern among governments all over the world.
Finally, the long-term contract adopts "formula pricing", which links the price at delivery with the spot price of benchmark crude oil. At this point, all the prices in the oil market have been calculated.
From this pricing system, we can get the following two inspirations. First, if China wants to establish its own crude oil benchmark, it must have a highly liquid futures market, and set a price level for crude oil consumed by China that conforms to China's national conditions. A high degree of liquidity requires the joint efforts of diversified forces such as oil companies, oil refining companies and financial speculators. Second, to truly grasp the pricing power, we should not only build our own "benchmark", but also grasp the price evaluation power. At present, "Platts price" is as important as Libor (London Interbank Offered Rate) in the interest rate market, and it is a long way to go to break the monopoly of price evaluation right in Europe and America.