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CHAPTER 11LESSON 063 MIN READ

Composite provenance

What happens to reliability when you combine two numbers.

WHY IT MATTERS

Combining a strong source with a weak one does not make the weak input disappear. The result inherits its weakest important assumption.

Most numbers on a desk are derived. A spread is a difference, a crack is a weighted combination, an attribution is a regression, a days-of-cover figure is a ratio. Each of those takes inputs with their own provenance and produces something new, and the question is what provenance the output carries.

The rule is the floor, never the ceiling. A derived value inherits the worst retrieval mode and the worst reliability across its inputs. One CACHED leg makes the result CACHED. One `official` leg makes an otherwise settlement-grade calculation `official`. Exact arithmetic does not upgrade the weakest observation, and the intuition that a careful calculation improves its inputs is precisely backwards.

WORKED EXAMPLEReliability floors in practice
M1 minus M2 spread, both exchange settlementssettlement
Crack spread from settled crude and settled productssettlement
Grade differential from a settlement and an assessmentofficial
Regression of a settled price on a modelled indexestimate
The floor across the legs, in every case
The first two are pure arithmetic on equally observed inputs, so they keep the tier. The last two do not.

There is a judgement the floor rule does not make for you. Pure arithmetic on equally official series can honestly keep that tier. A regression or a cross-instrument comparison should not, even when its inputs are all official, because the output now depends on a fitted relationship that is itself uncertain. The floor is the ceiling on what you may claim; choosing to go lower is the caller's responsibility.

The other half of honest composition is how to degrade. When a leg is unavailable, the options are to omit it silently, to report a zero for it, or to report the result with the missing leg named. The first two both fabricate: a silent omission changes the meaning of the total without saying so, and a zero contribution is indistinguishable from a real measurement of zero. Naming the dropped leg is the only one that leaves the reader able to judge.

ATRMove AttributionLIVE FROM THE DESKOpen on the desk
A derived panel, carrying the floor of its inputs and naming any leg it could not include.