Formula pricing is a method of crude or product pricing in which a predetermined formula sets the price of the commodity relative to other benchmark crude or product prices, with little or no month-to-month input from the buyer or seller. The formula is constructed so that changing market conditions are captured by changes in the benchmark prices used in the formulas.
In some cases, an extra constant is added that has to be set monthly by one or both of the parties. In this case, the goal of the formula is to minimize the role that the changing constant plays.
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