Differentials or “diffs” refer to the price adjustments applied to commodity benchmark prices to account for regional, quality, or delivery differences. These price adjustments reflect transportation costs, refining yields, sulfur content, or other specifications that affect value. Diffs are essential for pricing physical commodity transactions and regional market analysis.

Commodity diffs fluctuate based on regional supply-demand balances, infrastructure constraints, and seasonal patterns. For example, crude oil diffs reflect pipeline capacity, refinery preferences, and regional market conditions. Trading diffs requires understanding local market fundamentals and infrastructure limitations that create pricing disparities.

Real-world example: Mars crude oil typically trades at a $1.50 discount to WTI benchmark due to higher sulfur content, but this diff narrows to $0.75 when Gulf Coast refiners prefer sour crude for their configuration.