Benchmark (crude oil)
A benchmark crude or marker crude is a
Benchmarks are used because there are many
There is always a spread between WTI, Brent and other blends due to the relative volatility (high API gravity is more valuable), sweetness/sourness (low sulfur is more valuable) and transportation cost. This is the price that controls world oil market price.
West Texas Intermediate (WTI)
West Texas Intermediate is used primarily in the U.S. It is light (API gravity) and sweet (low-sulfur) thus making it ideal for producing products like low-sulfur gasoline and low-sulfur diesel. Brent is not as light or as sweet as WTI but it is still a high-grade crude. The OPEC basket is slightly heavier and more sour than Brent. As a result of these gravity and sulfur differences, (at least before 2011) WTI is typically traded at a dollar or two premium to Brent and another dollar or two premium to the OPEC basket.[4] Since 2011, WTI has traded at lower prices than Brent.
Brent Blend
Dubai and Oman
Dubai Crude, also known as Fateh, is a heavy sour crude oil extracted from Dubai. It is produced in the Emirate of Dubai, part of the United Arab Emirates.[5] Dubai's only refinery, at Jebel Ali, takes condensates as feedstocks, and therefore all of Dubai's crude production is exported. For many years it was the only freely traded oil in the Middle East, but gradually a spot market has developed in Omani crude as well.
For many years, most of the oil producers in the Middle East have taken the monthly spot price average of Dubai and Oman as the benchmark for sales to the Far East (WTI and Brent futures prices are used for exports to the Atlantic Basin). In July 2007, a potential new mechanism arose in the form of the Dubai Mercantile Exchange, which offers futures contracts in Omani crude. Whether the DME will be successful, and whether Omani futures prices will be adopted by producers and buyers as a benchmark, remain to be seen.
Canadian Crude
Edmonton Par and Western Canadian Select (WCS) "are benchmarks [sic] crude oils for the Canadian market. Both Edmonton Par and WCS are high-quality low sulphur crude oils with API gravity levels of around 40°. In contrast, WCS is a heavy crude oil with an API gravity level of 20.5°."[6]
The
Contracts
Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark.
The first futures contracts on crude oil were traded in 1983, with the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (Nymex) both attempting to take advantage of the government's de-regulation of crude oil. CBOT's initial contracts had delivery problems, so customers abandoned it for Nymex.[8]
Crude oil became the world's most actively traded
The contract trades in units of 1,000 barrels, and the delivery point is Cushing, Oklahoma, which is also accessible to the international spot markets via pipelines. The contract provides for delivery of several grades of domestic and internationally traded foreign crudes, and serves the diverse needs of the physical market.
See also
Citations
- ^ International Crude Oil Market Handbook, 2011
- ^ a b "Pricing Differences Among Various Types of Crude Oil". Archived from the original on 2010-11-13. Retrieved 2008-02-17.
- ^ "Oil markets explained". BBC News. 2007-10-18. Retrieved 2008-02-17.
- ^ "Oil Industry Commentary". Archived from the original on 2006-08-31. Retrieved 2006-07-05.
- ^ "Crude Benchmark Analysis". Archived from the original on 2006-03-22. Retrieved 2006-10-08.
- ^ Natural Resources Canada 2011, p. 9.
- ^ a b [1][permanent dead link]|http://boereport.com/2016/01/04/auspice-capital-advisors-launches-first-live-index-tied-to-canadian-crude-oil/[permanent dead link]
- ^ The Asylum, Leah McGrath Goodman, 2011, HarperCollins, p90-91
References
- Natural Resources Canada (2011), Canadian Crude Oil, Natural Gas and Petroleum Products: Review of 2009 & Outlook to 2030 (PDF), Ottawa, ON: Government of Canada, p. 9, ISBN 978-1-100-16436-6, archived from the original(PDF) on October 3, 2013