Most news items that talk about oil pricing usually refer to one of two varieties of crude oil that are the most commonly used to determined oil prices on the energy market. West Texas Intermediate crude and Brent crude are probably not unfamiliar names to anyone who reads the financial press, as it is usually one of these two that is being spoken of when on the subject of price-per-barrel.
But there are hundreds of different types of crude oil that are available on global energy markets. Each variety is typically named after the region in which it is produced, and thus the name of a given type of crude serves as a relative indicator of shipping costs. The characteristics of each variety are determined by crude oil assay analysis, a standardized testing procedure conducted at petroleum laboratories.
While each type of crude has a unique chemical composition, the two important characteristics in terms of the global energy market are density and sulfur content. Density, known as “API gravity” in industry nomenclature, ranges from light to heavy. Light crude has an API gravity of 34 or higher, while heavy crude has an API of 30 or less, and the lighter varieties are more valuable because they yield more petroleum during the refining process. Sulfur content ranges from sweet to sour; a crude is officially sweet when less than 0.5 percent of its weight is sulfur, while in sour crudes, sulfur counts for 1 percent or more of an oil's weight. A premium is placed on sweeter varieties as these require a less elaborate and costly refining process.
Thus, the combination of region, density, and sulfur content form the basis for determining crude oil prices. And though there are at least 200 different types of crude, only a few of them are used as price benchmarks. The main benchmark references are:
West Texas Intermediate– WTI crude is known for being relatively light and sweet, and serves as one of the most important pricing benchmarks. Cushing, a small town in the state of Oklahoma and a major delivery hub for crude oil contracts, has served as the price-settlement point for WTI on the New York Mercantile Exchange. WTI is typically extracted from wells in the Midwest and the Gulf Coast.
Brent- Brent crude is also light and sweet, though less so that WTI, and comes from the North Sea off the coast of the United Kingdom. At present, Brent actually refers to a collection of four slightly differing varieties of crude typically found in the North Sea, and serves as a pricing benchmark for some two-thirds of global crude oil trading.
Dubai- Dubai crude is known to be light and sour, and comes, of course, from the UAE emirate of the same name. Dubai crude is known in Arabic by the name “Fateh”, meaning “victory,” or “triumph,” and is typically used as a benchmark for pricing crude exports from the Persian Gulf to the Eastern reaches of the Asian continent. But this variety’s importance exceeds the boundaries of the region because of all the different varieties of crude originating in the Persian Gulf, it is the most readily available.
The OPEC Reference Basket (ORB)- The ORB is a weighted average of crude prices from member-nations of the Organization of Petroleum Exporting Countries. Originally, the crudes gathered under the ORB average included Saudi Arabian Arab Light, Nigerian Bonny Light, Dubai’s Fateh crude, Mexican Isthmus crude, Indonesian Minas, the Algerian Sahara Blend, and Venezuelan Tia Juana Light. Since 2005, Mexican, Indonesian, and Dubai crudes were removed from the list while other important crudes were been added, including Ecuadorian Oriente crude, Iranian Heavy crude, Iraqi Basra Light crude, Qatar’s Marine crude, Murban crude from the United Arab Emirates, Angolan Girassol crude, Libyan Es Sider crude, and BCF 17 crude from Venezuela.
There are also other well-known varieties of crude that, while not as consequential as pricing references, at least on a global scale, are still very well-known.
Tapis– The Malaysian crude serves as the pricing benchmark in Singapore, and is often used as the price marker for Asia and Australia.
Urals- Urals crude is a Russian blend that mixes ight oil from Western Siberia with heavier oil from the Volga and Urals regions.