TL;DR The WTI price you see quoted on TV or in the news is usually the front-month NYMEX futures contract. However, most oil producers and businesses actually price and hedge against the WTI Calendar Month Average (CMA) contract, which is an average of daily futures settlements. In volatile markets (like during geopolitical spikes), these two can diverge significantly—the futures price often moves faster and more extremely than the CMA. Understanding this difference is key to managing basis risk and avoiding surprises in your actual hedged price. Producer’s physical pricing formulas are most commonly tied to the NYMEX WTI Calendar Month Average (CMA) contract The price quoted in the media is generally the WTI futures contract While linked, there can be price dislocation on extreme price moves |
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- Producer’s physical pricing formulas are most commonly tied to the NYMEX WTI Calendar Month Average (CMA) contract
- The price quoted in the media is generally the WTI futures contract
- While linked, there can be price dislocation on extreme price moves
In the world of energy trading, not all pricing tools are created equal. Two commonly used benchmarks— WTI Futures Contracts and WTI Calendar Month Average (CMA) Contracts- serve different purposes and appeal to different types of traders and hedgers.
Most oil producers’ pricing formulas are based on the NYMEX WTI Calendar Month Average (CMA) contract. However, the WTI price commonly quoted in the media is the front-month futures price, an exchange-traded instrument accessible to speculators and investors. Although CMA pricing is derived from the futures curve, extreme price moves can create temporary dislocations between the two.
A Real-World Example
The current US/Iran war has created the most recent dislocation between futures prices and CMA prices. The acute spike in pricing due to geopolitical risk has resulted in a concentrated move in near term futures pricing. This increase in near-term futures pricing has caused backwardation to increase, resulting in WTI futures prices outperforming the corresponding WTI CMA contract.
The chart below illustrates this divergence.
