The Names and Types
Crude oil is a substance that has naturally been occurring since time immemorial and is found on particular rock formations around the earth. In order to utilize crude oil to its full potential, it must undergo refinement and be turned into petroleum products with gasoline and petrol being the most known byproduct of refinement. Other variants are fuel oil, gas oil, kerosene, liquefied petroleum gas (LPG), and naphtha.
It is common in the crude oil industry for these various oils to given names. Examples of such names are the Bonny Light and Brent Light Crude Oil. Apart from the names crude oils also come in various types: heavy, light, sour, and sweet. Light oil is said to have a low density and viscosity composition, while heavy oil is the exact opposite. Likewise, sweet oil contains less sulfur, and sour the opposite. Naturally, markets would choose both light and sweet oils due to the fact the refinement and production time for both is toned down compared to their heavy and sour counterparts.
The Big Three
A myriad of oil benchmarks are available and each of these represent a crude oil from different parts around the world. Yet, the prices of these oils are assorted among the three most dominant benchmarks.
Brent Blend – and estimated two-thirds of existing crude contracts in the world point to Brent Blend, thus making this the most well-known and utilized benchmark among the three. Today Brent is divided into four oils with four distinct fields located within the North Sea: Brent, Ekofisk, Forties, and Oseberg. The crude accumulated here is both light and sweet, thus making them the perfect substance to be refined into gasoline and various other products that are in demand.
West Texas Intermediate (WTI) – This benchmark is mostly gathered from wells across the United States and is sent to Cushing, Oklahoma via pipelines. However one set back with this benchmark is that it is land-locked to the United States and shipping it around the world would be costly. Similar to the composition of Brent Blend, WTI is both light and sweet.
Dubai/Oman – Unlike the Brent and WTI, this Middle Eastern crude serves as an ideal reference to slightly lower grade oils and is the main reference for the Persian Gulf oil. The oils under this benchmark come from Dubai and Oman, better known as Abu Dhabi. Another contrast between Brent and the WTI is that this oil is heavier and high in sulfur.
The Crude market offers great diversity, with both the quality and origin of the oil affecting the price. Due to their stability, majority of crude oil prices are based on the three big benchmarks, Brent, Dubai/Oman, and WTI.