The posted price is the price at which buyers or sellers are willing to transact for a particular commodity. Depending on the circumstances, the posted price may differ materially from the market price of that commodity.
Understanding Posted Price
What Is a Posted Price?
The market price is the current price at which an asset or service can be bought or sold. The market price of an asset or service is determined by the forces of supply and demand.
Key Takeaways: Posted prices are the prices at which market participants are willing to buy or sell a particular commodity. Although companies are free to set posted prices as they see fit, they generally converge around agreed-upon market prices or benchmarks. Because commodity prices are driven by supply and demand, posted prices will often change suddenly in response to unforeseen disruptions in their relevant supply chains.
How Posted Prices Work
Efficient Commodity Transactions
Commodities are any essential goods and services that are required across a wide range of supply chains. Examples of commodities include energy products, such as oil, gas, and electricity; food products, such as wheat, corn, and soil beans; and metals, such as steel, platinum, and gold.
Rather than transacting directly with each other, businesses are able to buy and sell commodities far more efficiently by routing their orders through an organized exchange. The exchange, which also involves brokers and other intermediaries, allows market participants to discover the best available price for a given commodity and to submit their offers to buy or sell at a specified price.
When companies submit their buy or sell orders into a commodities exchange, the price at which they are willing to transact is known as the posted price. Other market participants will be able to view that offer to trade, and this information will be used to determine the overall market price.
In the aggregate, the balance of posted prices will affect the bid-ask spread of a given commodity. A bid-ask spread is the amount by which the ask price exceeds the bid price for any asset or commodity in the market. If buyers and sellers disagree strongly on the fair value of the commodity—that is, if they disagree on the price at which they are willing to trade—then the bid-ask spread will be wide. Conversely, if the posted buy and sell prices are fairly close together, then the bid-ask spread will be narrow.
In some cases, individual market participants will offer posted prices that are widely divergent from what the majority of buyers and sellers are willing to accept. In those situations, the posted price will have little influence on the market as a whole. In this situation, this participant may also struggle to find a party willing to accept their posted price.
Example of Posted Price
Influence of Unforeseen Events
Because commodity prices fluctuate based on supply and demand, it is not uncommon for the direction of posted prices to change significantly in response to unforeseen events, such as a massive auto safety recall, a crisis in a foreign, oil-rich country that drives up oil prices, or a prolonged drought that devastates crops.
In the oil industry, posted prices are often influenced by the flow of oil supplies between refineries, terminals, pipelines, and other critical stages in the industry’s supply chain. Although individual market participants are free to submit their own posted prices, most parties in the industry use a common benchmark, known as the West Texas Intermediate (WTI), as a reference when pricing their orders.
Likewise, the Canadian oil market commonly determines its posted prices by referencing the WTI and applying a standard price differential. This adjusted price is then reflected in a second benchmark widely used in Western Canada, known as the Western Canada Select (WCS).
The difference between these two benchmarks–WCS and WTI–is subject to change based upon conditions in those given regions. For example, from late 2017 to early 2018, the gap between the two benchmarks changed drastically, as production in Alberta outstripped the area’s pipeline capacity. The oversupply caused buyers to discount WCS oil against WTI more steeply than in the recent past. This action significantly reduced both their posted prices and the resulting benchmark.