Preface
Since the implementation of the floating oil price mechanism, there have been news of oil price increases and decreases every week. How is the oil price determined? What indicators do the “international oil price fluctuations” that often appear in the news come from? How is the change in oil prices affected and what impact will it have on the market? Let’s find out now!
Common international oil price indicators!
Many countries produce oil, and each producing area usually has different pricing benchmarks due to differences in output, extraction costs, and output quality. So there are many different oil price indicators. However, in order to facilitate trading, the crude oil market has begun to use the oil prices of several specific producing areas as “standard crude oil prices” to establish a unified trading benchmark to facilitate cross-border trade.
Crude oil currently used as the main pricing indicator includes North Sea Brent Crude, US West Texas Intermediate(WTI) and Dubai Crude Oil, which are applicable to different regions (continents) trading market.
What is West Texas Crude Oil (WTI)?
Firstly, West Texas crude oil is the general term for light and medium crude oil produced in Texas. The API gravity of WTI crude oil is about 35 to 50. It is an ultra-light crude oil with a sulfur content of only 0.2%. It is very high quality and suitable for refining daily gasoline and fuel oil. The Midwest of the United States is the main producing area of West Texas crude oil. It can be refined into other petroleum products, some of which are refined in the Gulf Coast region.
Since its listing on the New York Mercantile Exchange (NYMEX) in 1983, WTI crude oil has become the representative oil of Light Sweet Crude Oil. Because of it’s good liquidity and high price transparency. WTI crude oil futures are the commodity with the largest trading volume in the world at the moment. The delivery point of WTI crude oil is at “Cushing, Oklahoma,” while refineries are mostly located in the U.S. Gulf of Mexico. The price of West Texas crude oil mainly reflects the supply and demand of crude oil in the United States. However, due to the restrictions on land transportation conditions and delivery locations, the price of West Texas crude oil futures is easily affected by “US domestic supply” and “pipeline transportation conditions”. The West Texas crude oil futures price is currently one of the benchmark prices in the world crude oil market.
What is Brent Crude Oil?
Secondly, Brent crude oil refers to crude oil produced in the European North Sea and refined in Western Europe, the API gravity of Brent crude oil is about 38, with a sulfur content of 0.38%. It is a light sweet crude oil, slightly lower in quality than West Texas crude oil, suitable for refining gasoline, diesel and jet fuel. In 1988, Brent crude oil was listed on the International Petroleum Exchange in London, the United Kingdom. Its futures contracts basically do not have a delivery point, and physical delivery is carried out by converting futures to physical goods. In addition, the port and sea transportation are convenient, Brent crude oil is rarely restricted by external hardware facilities and can be freely shipped to other parts of the world.
Brent crude oil is an important reference indicator for European crude oil. Crude oil exported from Africa to the West is priced according to Brent crude oil, and crude oil producers in Russia, Nigeria and even other parts of the Middle East and Asia also use it as a reference indicator. Due to brent crude oil reflects the supply and demand status of global crude oil, that’s why it is regarded as an indispensable part of the world crude oil market together with West Texas crude oil.
What is Dubai Crude Oil?
Lastly, Dubai crude oil is crude oil produced in Dubai, the API gravity is about 31. It it is classified as medium-quality crude oil, with a sulfur content of about 2%. The quality of Dubai crude oil is the worst among the three crude oils. The price is slightly lower than Brent crude oil, which is the main pricing benchmark for sour crude oil. Dubai crude oil is traded on the Dubai Futures Exchange, which was established in 2007. Since there is no destination restriction, its absolute price is widely used in crude oil spot trade. The spot price of crude oil in Dubai is not only used by OPEC, but also the crude oil price indicator for the entire Middle East region, as well as the crude oil price reference for exports from the Middle East region to Asia.
Completion
Brent crude oil affects the supply and demand of crude oil in Europe and Africa, accounting for about 50% of global crude oil trading volume. West Texas crude oil directly affects US oil prices, accounting for about 25% of global oil trading. Dubai crude oil has a greater impact on Asian oil prices. West Texas crude oil has the best quality with the lowest sulfur content. It is mainly from the West Coast of the United States and the Persian Gulf, . Although Brent is inferior in quality to West Texas, it is still a low-sulfur crude. Dubai crude oil, on the other hand, is a medium-heavy crude oil with the worst quality.
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