130 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
on a spot basis, price is determined at the margin in the spot
market.
For the last 20 years, price discovery in the oil market has been
concentrated around three main regional crude oil benchmarks,
also known as 'marker
7
crudes: West Texas Intermediate (WTI) from
the United States, Brent Blend from the UK North Sea and Dubai, or
Fateh, crude from the United Arab Emirates.
The relative value of different crude oils is determined by two
main factors: location and quality. In the case of Brent crude oil
and West Texas Intermediate crude oil, the crude produced is
light and sweet. Both grades are produced in or near key oil consuming and refining centers. The twin advantage of quality and
location mean that such a crude oil can command a relatively
high price.
West Texas Intermediate crude oil is widely used in the pricing of
US domestic crudes, as well as oil imports into the US. Brent crude
oil has become the de facto international oil benchmark partly
because of its location and partly because it is a good quality oil
that can be used by a wide range of refineries. The physical value of
North Sea Brent crude oil is widely used in benchmarking the bulk
of oil from the North Sea, West and North Africa, Russia and Central
Asia, as well as large volumes from the Middle East heading into
western markets. Dubai, meanwhile, is a medium-to-heavy, lowsulfur crude oil that is typical of the grades produced in the Persian
Gulf, but distant from consuming centers. As a result, it tends to sell
at a lower price than Brent crude oil and West Texas Intermediate
crude oil.
In recent years, the production level of each of the marker
crudes has fallen; and in the case of Dubai, it has fallen drastically. Meanwhile, the proportions of heavier and sourer crudes
that change hands in the term market have grown relative to light,
sweet production (Swain, 1991,1993,1998,2000). In fact, more than
half the world's produced oil is heavy and sour in quality and this
proportion is expected to increase (Chapter 2).
Middle Eastern crudes, typified by the heavy sour volumes that
flow through the Strait of Hormuz, have grown in importance as a
supply source for markets in both east and west. The dominant role
of Saudi Arabia, the world's largest oil exporter, has been a factor
in this, as the kingdom has the only immediately available spare
capacity among OPEC member nations. Meanwhile, Russia has
emerged as a major supplier to western markets after a period of
on a spot basis, price is determined at the margin in the spot
market.
For the last 20 years, price discovery in the oil market has been
concentrated around three main regional crude oil benchmarks,
also known as 'marker
7
crudes: West Texas Intermediate (WTI) from
the United States, Brent Blend from the UK North Sea and Dubai, or
Fateh, crude from the United Arab Emirates.
The relative value of different crude oils is determined by two
main factors: location and quality. In the case of Brent crude oil
and West Texas Intermediate crude oil, the crude produced is
light and sweet. Both grades are produced in or near key oil consuming and refining centers. The twin advantage of quality and
location mean that such a crude oil can command a relatively
high price.
West Texas Intermediate crude oil is widely used in the pricing of
US domestic crudes, as well as oil imports into the US. Brent crude
oil has become the de facto international oil benchmark partly
because of its location and partly because it is a good quality oil
that can be used by a wide range of refineries. The physical value of
North Sea Brent crude oil is widely used in benchmarking the bulk
of oil from the North Sea, West and North Africa, Russia and Central
Asia, as well as large volumes from the Middle East heading into
western markets. Dubai, meanwhile, is a medium-to-heavy, lowsulfur crude oil that is typical of the grades produced in the Persian
Gulf, but distant from consuming centers. As a result, it tends to sell
at a lower price than Brent crude oil and West Texas Intermediate
crude oil.
In recent years, the production level of each of the marker
crudes has fallen; and in the case of Dubai, it has fallen drastically. Meanwhile, the proportions of heavier and sourer crudes
that change hands in the term market have grown relative to light,
sweet production (Swain, 1991,1993,1998,2000). In fact, more than
half the world's produced oil is heavy and sour in quality and this
proportion is expected to increase (Chapter 2).
Middle Eastern crudes, typified by the heavy sour volumes that
flow through the Strait of Hormuz, have grown in importance as a
supply source for markets in both east and west. The dominant role
of Saudi Arabia, the world's largest oil exporter, has been a factor
in this, as the kingdom has the only immediately available spare
capacity among OPEC member nations. Meanwhile, Russia has
emerged as a major supplier to western markets after a period of