A benchmark crude or marker crude is a crude oil that serves as a reference price for buyers

and sellers of crude oil. There are three primary benchmarks, West Texas

Intermediate (WTI), Brent Blend, and Dubai Crude. Other well-known blends include the OPEC

Reference Basket used by OPEC, Tapis Crude  which is traded in Singapore,Bonny Light used in

Nigeria, Urals oil used in Russia and Mexico's Isthmus. Energy Intelligence Group publishes a

handbook which identified 195 major crude streams or blends in its 2011 edition.[1][2]

Benchmarks are used because there are many different varieties and grades of crude oil.[3] Using

benchmarks makes referencing types of oil easier for sellers and buyers.

There is always a spread between WTI, Brent and other blends due to the transportation cost.

Contents

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1 West Texas Intermediate (WTI)

2 Brent Blend

3 Dubai and Oman

4 Contracts

5 See also

6 Citations

7 References

West Texas Intermediate (WTI)[edit]

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,

before 2011 WTI 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 a significant discount to Brent.

Edmonton Par and Western Canadian Select (WCS) "are benchmarks crude oils for the

Canadian market. Both Edmonton Par and West Texas Intermediate 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°."[5]

Brent Blend[edit]

Brent Crude is used primarily in Europe and in the OPEC market basket which is used around

the world. This benchmark is a mix of crude oil from 15 different oil fields in theNorth Sea.[2]

Dubai and Oman[edit]

Dubai Crude, also known as Fateh, is a light sour crude oil extracted from Dubai. It is produced

in the Emirate of Dubai, part of the United Arab Emirates.[6] 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.

Contracts[edit]

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.[7]

Crude oil became the world's most actively traded commodity, and the NYMEX Division light

sweet crude oil futures contract becoming the world's most liquid form for crude oil trading, as

well as the world's largest-volume futures contract trading on a physical commodity. Additional

risk management and trading opportunities are offered through options on the futures contract;

calendar spread options; crack spread options on the pricing differential of heating oil futures and

crude oil futures and gasoline futures and crude oil futures; and average price options.

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.

DEFINITION OF 'BENCHMARK CRUDE OIL'Benchmark crude oil is crude oil that serves as a pricing reference, making it easier for sellers and buyers to determine the prices of multitudes of crude oil varieties and blends.

INVESTOPEDIA EXPLAINS 'BENCHMARK CRUDE OIL'According to the Energy Intelligence Group, there exist nearly 200 varieties of crude oil. West Texas Intermediate (WTI), Brent Crude, and Dubai Crude are

primarily used as benchmarks, although there are others that are sometimes used as well.

Benchmarks play an important role in pricing crude oil

Source: U.S. Energy Information Administration, from BloombergNote: Dubai/Oman price calculated by taking the average of Dubai and Oman spot prices.

When energy analysts and the media discuss the price of crude oil, they are typically referring to one of a small

group of specific types of crude oil that are widely and actively bought and sold. The use of such benchmark

crudes makes it easier for buyers and sellers to price the variety of crudes that are produced around the world.

The most widely used benchmarks are associated with crude oil that has four common qualities: stable and

ample production; a transparent, free-flowing market located in a geopolitically and financially stable region to

encourage market interactions; adequate storage to encourage market development; and/or delivery points at

locations suitable for trade with other market hubs, enabling arbitrage (profit opportunities) so that prices reflect

global supply and demand.

Other types of crude oil can be compared to these benchmarks by an agreed-upon differential. The agreed-upon

differential takes into account a number of factors, including quality characteristics such as API gravity

(density) or sulfur content, transportation costs from production areas to refineries, and regional and global

supply and demand conditions, including refinery utilization.

Three of the most significant benchmarks in global crude oil markets are Brent, West Texas Intermediate (WTI),

and Dubai/Oman.

Brent, which is the most widely used global crude oil benchmark, includes four separate light, sweet crude

streams that are produced in the North Sea: Brent and Forties (produced offshore the United Kingdom) as well

as Ekofisk and Oseberg (produced offshore Norway). In 2013, Brent crude oil loadings averaged 0.86 million

barrels per day (bbl/d), representing about 1% of total world crude oil production of 76 million bbl/d. Brent is used

to price light, sweet crude oil that is produced and traded not only in Europe, the Mediterranean, and Africa, but

also in Australia and some countries in Asia.

West Texas Intermediate (WTI) is a light, sweet crude oil produced in the United States that is priced at the

crude oil trading hub of Cushing, Oklahoma. WTI is used as a benchmark for other types of crude oil produced in

the United States, such as Mars, a medium, sour crude produced in the Gulf of Mexico, and Bakken, a light,

sweet crude produced in North Dakota. WTI is also used as a benchmark for imported crude oil that is produced

in Canada, Mexico, and South America.

Dubai/Oman is a third major benchmark crude. The prices of Dubai and Oman crudes, both of which are

medium and sour, are often averaged to create a benchmark that is typically used to price crude oil produced in

the Middle East and exported to Asian markets. Dubai crude oil production has steadily declined for more than

two decades, and in 2013 was only 34,000 bbl/d. As a result, Oman crude oil, which reached 0.94 million bbl/d

of production in 2013, has been used to support the continued use of Dubai crude as a benchmark. Saudi

Arabia's state-owned oil company, Saudi Aramco, uses the Dubai/Oman benchmark when determining the price

of its crude oil sold for delivery to Asia.

For more information, see the October 16 This Week in Petroleum.

Source: U.S. Energy Information Administration, based on Energy Intelligence Group—International Crude Oil Market HandbookNote: See geographic location of crude oil price points