CRUDE OIL CLASSIFICATION AND BENCHMARKS
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West Texas Intermediate crude oil is of very high quality and is
excellent for refining a larger portion of gasoline. Its API gravity is
39.6 degrees, making it a light crude oil, and it contains only about
0.24 percent of sulfur, making a sweet crude oil. This combination of
characteristics, combined with its location, makes it an ideal crude
oil to be refined in the United States — the largest gasoline consuming country in the world. Most West Texas Intermediate crude oil
is refined in the Midwest region of the United States, with some
more refined within the Gulf Coast region. Although the production of WTI crude oil is on the decline, it still is the major benchmark of crude oil in the Americas. West Texas Intermediate crude
oil generally priced at about a $5 to $6 per-barrel premium to the
OPEC Basket price and about $1 to $2 per-barrel premium to Brent,
although on a daily basis the pricing relationships between these
crude oils can also vary greatly.
Dubai crude oil is a benchmark for Persian Gulf crudes, and
is light yet sour crude oil. The OPEC crude oil Basket blend is
OPEC's benchmark and is a weighted average of oil prices collected from various oil producing countries. This average is determined according to the production and exports of each country
and is used as a reference point by OPEC to monitor worldwide oil
market conditions. As of June 15, 2005 the basket was changed to
represent the oil produced by OPEC members and is and is made
up of 13 different regional oils, namely: Algeria's Saharan Blend,
Angola's Girassol, Ecuador's Oriente, Indonesia's Minas, Iran's
Iran Heavy, Iraq's Basra Light, Kuwait's Kuwait Export, Libya's Es
Sider, Nigeria's Bonny Light, Qatar's Qatar Marine, Saudi Arabia's
Arab Light, the United Arab Emirates' Murban, and Venezuela's
BCF 17 crude oil.
As mentioned above, because WTI crude oil is a very light, sweet
crude, it is generally more expensive than the OPEC Basket blend.
Brent is also lighter, sweeter, and more expensive than the OPEC
basket, although less so than West Texas Intermediate crude oil.
Since the marker crude system was introduced in the mid-1980s,
there has been general industry acceptance that spot trade in these
barrels acts as a barometer of the overall market level. Different
grades of oil are priced on negotiable differentials to the marker
grade. The rationale is that, in any market, the spot price represents the balancing point of supply and demand. Even though the
volumes of oil that trade daily on a term contract basis between
companies or governments are much bigger than those that trade
129
West Texas Intermediate crude oil is of very high quality and is
excellent for refining a larger portion of gasoline. Its API gravity is
39.6 degrees, making it a light crude oil, and it contains only about
0.24 percent of sulfur, making a sweet crude oil. This combination of
characteristics, combined with its location, makes it an ideal crude
oil to be refined in the United States — the largest gasoline consuming country in the world. Most West Texas Intermediate crude oil
is refined in the Midwest region of the United States, with some
more refined within the Gulf Coast region. Although the production of WTI crude oil is on the decline, it still is the major benchmark of crude oil in the Americas. West Texas Intermediate crude
oil generally priced at about a $5 to $6 per-barrel premium to the
OPEC Basket price and about $1 to $2 per-barrel premium to Brent,
although on a daily basis the pricing relationships between these
crude oils can also vary greatly.
Dubai crude oil is a benchmark for Persian Gulf crudes, and
is light yet sour crude oil. The OPEC crude oil Basket blend is
OPEC's benchmark and is a weighted average of oil prices collected from various oil producing countries. This average is determined according to the production and exports of each country
and is used as a reference point by OPEC to monitor worldwide oil
market conditions. As of June 15, 2005 the basket was changed to
represent the oil produced by OPEC members and is and is made
up of 13 different regional oils, namely: Algeria's Saharan Blend,
Angola's Girassol, Ecuador's Oriente, Indonesia's Minas, Iran's
Iran Heavy, Iraq's Basra Light, Kuwait's Kuwait Export, Libya's Es
Sider, Nigeria's Bonny Light, Qatar's Qatar Marine, Saudi Arabia's
Arab Light, the United Arab Emirates' Murban, and Venezuela's
BCF 17 crude oil.
As mentioned above, because WTI crude oil is a very light, sweet
crude, it is generally more expensive than the OPEC Basket blend.
Brent is also lighter, sweeter, and more expensive than the OPEC
basket, although less so than West Texas Intermediate crude oil.
Since the marker crude system was introduced in the mid-1980s,
there has been general industry acceptance that spot trade in these
barrels acts as a barometer of the overall market level. Different
grades of oil are priced on negotiable differentials to the marker
grade. The rationale is that, in any market, the spot price represents the balancing point of supply and demand. Even though the
volumes of oil that trade daily on a term contract basis between
companies or governments are much bigger than those that trade