The following paragraphs assume you have read and understood the explanation of the NYMEX CMA and the CMA roll described at http://thedominoeffect.com/cma
WTI P-Plus, or posting-plus is a pricing mechanism for spot, physical barrels at the Cushing, OK crude trading hub based on CME/NYMEX futures prices, somewhat similar to the NYMEX CMA. The P-Plus mechanism utilizes two pricing elements - a base price and a premium. The base price is an average of company crude postings during the delivery month. The premium is a differential to the crude oil posting average (P-Plus) that represents the value of WTI delivered into the Cushing, OK trading hub from the production field during the current calendar month. Although this price mechanism is based on company posted prices, as described below the postings are actually derived from the same NYMEX settlement prices that are used in the CMA average.
The foundation of P-Plus is the crude oil posted price, a convention used by certain purchasers of U.S. field-level crude production. This convention is described in Chapter 7 of The Domino Effect. In the early days of the industry, domestic refiners would nail a sign to a post with the price they were willing to pay producers for their crude oil. Eventually other mechanisms were used to communicate the postings, but the name stuck. By definition, a crude oil posting is the price a buyer is willing to pay for a barrel of crude.
Posted prices are used primarily by aggregators (e.g. Plains All American, Enterprise Products Partners) and some refiners (e.g., Phillips 66) to purchase crude from small producers, frequently under a marketing arrangement where the purchaser handles payment to individual royalty holders, which can number into the hundreds for even one well. These aggregators and refiners post daily prices that they are willing to pay for certain crude grades, together with the gravity adjustments that discount the price if the crude is outside the API gravity specification the buyer desires. Posted prices are usually “at the wellhead” - discounted by any transport costs such as a trucking fee or pipeline gathering fee to reach the buyer’s injection point into a pipeline or refinery gate.
The postings that are used in P-plus transactions can be for a single company or an average of several companies, depending on the bilateral purchase and sale agreement between the parties. Today most transactions use the Phillips 66 (formerly ConocoPhillips) posting. Although theoretically Phillips 66 could set that posting at any level the company wishes, in practice the posted price value is linked directly to the daily NYMEX settlement price. In fact, the Phillips 66 WTI posting (without any gravity adjustment) has been priced at a fixed discount of $3.38/Bbl to the NYMEX WTI settle price since April 2008. In effect that means the “postings” part of a P-Plus price average is actually NYMEX CMA - $3.38/Bbl. The only difference is that the monthly posting average is calculated for every single day in the month using the last posted price to fill weekends or holidays. The basic CMA described at http://thedominoeffect.com/cma uses NYMEX “Merc” days for the average.
The postings-plus premium is calculated by averaging published Platts Oilgram price assessments for WTI P-Plus. The P-Plus premium should in theory just represent the cost of transporting WTI from the wellhead (where the posted price is based) to the Cushing, OK hub, but in practice the premium fluctuates with the demand for prompt WTI barrels at Cushing. Platts assesses the P-Plus premium each day based on trade activity. Anytime that the P-Plus market as reported by Platts trades below $3.38/Bbl the value of P-Plus prompt barrels at Cushing is discounted to NYMEX. For example, Platts P-Plus was $3.15 on September 25, 2015, so the discount was $0.23/bbl. Anytime that P-Plus is above $3.38 then there is a premium for prompt barrels.
Calculating the P-Plus premium monthly average involves a similar time adjustment to the CMA roll – using NYMEX prices for the physical trade month before delivery. However, in this mechanism there is no complicated roll calculation involved. The P-Plus premium is simply an average of Platts P-Plus quotes during the physical barrel “trade” month prior to delivery. The trade month in this case is the period when physical WTI barrels for delivery are trading for “prompt” delivery. Consider the November 2015 delivery period used in the CMA examples.
The trade month for physical November 2015 delivery was between the day after the October pipeline nomination deadline (September 25th 2015) and the last day for November nominations (October 23rd). Like the postings, the average is a calendar month average with weekends and holidays filled with prior values. The P-Plus premium average is added to the posting average to get the P-Plus price.
In some crude oil purchase agreements, there is an additional element reflecting the difference between WTI prices at Cushing and WTI prices in the production region at Midland, TX. If the purchaser is a refiner in the Midland area then they don’t want to pay the P-Plus delivered price to Cushing, so they structure the formula to discount the P-Plus price by the Midland/Cushing spread.
Which is Best – CMA or P-Plus?
The P-Plus price mechanism is used exclusively for WTI or West Texas Sour (WTS) crude purchases delivered to Cushing. The CMA price mechanism is used more widely because it can more easily be adjusted by quality and location differentials for any US domestic crude grade. Because the WTI crude postings published by Phillips 66 are simply a fixed differential to the NYMEX settle, the two base price mechanisms end up being very similar. However, the roll adjust mechanism for CMA is more reflective of the futures market structure than the WTI P-plus adjustment that only reflects localized physical crude transport costs in the Cushing market. WTI P-Plus is obviously limited to transactions requiring delivery close to Cushing.
The two WTI crude price mechanisms are quite similar in concept but suit different purposes. WTI P-Plus is a local market price for physical WTI barrels and the CMA NYMEX price is the benchmark underneath the price of most US domestic crude transactions. There are variations on the formulas used to calculate these prices. The fundamental linkage between these base prices and the NYMEX WTI futures market provides the assurance of a liquid market and transparent prices.