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Crude oil benchmarks, also known as oil markers, were first introduced in the mid 1980s. There are three primary benchmarks, WTI, Brent Blend, and Dubai. Other well known blends include the Opec basket used by OPEC, Tapis Crude which is traded in Singapore, Bonny Light used in Nigeria and Mexico's Isthmus. The Energy Intelligence Group has published a handbook which identifies 161 different blends in total.
Benchmarks are used because there are many different varieties and grades of crude oil. Using benchmarks makes referencing types of oil easier for sellers and buyers.
West Texas Intermediate (WTI)
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, WTI typically trades at a dollar or two premium to Brent and another dollar or two premium to the OPEC basket.
Brent Crude is used primarily in Europe and the OPEC market basket, used around the world. This benchmark is a mix of crude oil from 15 different oil fields in the North Sea.
Dubai and Oman
Dubai Crude is also known as Fateh is produced in the Emirate of Dubai, part of the United Arab Emirates. 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 has arisen 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, remains to be seen.
Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark.
Crude oil is the world's most actively traded commodity, and the NYMEX Division light sweet crude oil futures contract is 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.