Understanding: What Is Benchmark Crude Oil?

Aug 13, 2022 By Triston Martin


What Is Benchmark Crude Oil? When valuing other types of oil and assets related to oil, the price of benchmark crude is typically used as a comparison point because it is the most widely traded kind of oil. Investors and other industry participants place a significant amount of reliance on benchmark crude oil. A benchmark for crude oil is a standard that uses to compare and contrast the prices of various crude oils. More than 200 distinct types of crude oil are traded often on the market. Traders, analysts, analysts, and investors using the benchmark determine the worth of the various crude oil blends and grades.

A price of crude oil used to create a price level for the commodity is referred to as a benchmark. The benchmark price is an important signal for dealers operating in the international market for crude oil. The application of industry standards as benchmarks helps to maintain market stability. Because of this, there is now more liquidity in the market.

Types of benchmark Crude oil

There will always be a premium on WTI over Brent and other blends. That is because of the differences in volatility (oils with higher API gravities are more desirable), sweetness/sourness (oils with lower sulphur levels are more valued), and transportation expenses. We are looking at the price right now, which will drive the movement of the international oil market. The following three primary types of oil have the strongest correlation with the benchmark crude oil:

  • West Texas Intermediate is ideal for processing low-sulfur fuels like gasoline and diesel due to its low API gravity and sulphur content. In addition, the West Texas Intermediate has low gravity. Although it is considered a premium crude oil, Brent does not have the same lightness or sweetness as WTI.
  • The fifteen separate oil fields in the North Sea provide the crude oil used to create Brent Crude. Even though it is largely a European standard, it is also a component of the OPEC reference basket, which serves as a benchmark worldwide.
  • A heavy and sour crude oil known as Fateh is produced in Dubai. It is also known as Dubai Crude. It is an emirate that is part of the United Arab Emirates, and Dubai is where it is manufactured. Although a spot market for Omani crude has evolved recently, it was the only oil in the Middle East freely traded for many years.
  • The Canadian Crude Index (CCI) is a standardised method of measuring the value of Canadian crude oil. Investors can keep an eye on the price and the risk and volatility associated with the Canadian commodity. The CCI maintains a consistent price for Canadian crude oil.

Crude oil prices and differentials

The importance of Brent crude's function as a price benchmark for oil on the world market is greater than ever. In terms of international oil commerce, the Brent oilfield is in an advantageous position thanks to its location in a crucial part of market for European exports and imports, including the United States and Asia. This contract's pricing is easier to figure out than those for goods of varying grades and coming from various parts of the world because it is transported by water.

Risk management for crude oil

More than seventy-five per cent of the world's crude oil exports utilise brent oil as a pricing benchmark since it is one of the crude grades with the highest liquid content. Crudes from the region of the Urals in Russia, the region of the Niger Delta in Nigeria, the coast of Angola, and the primary OPEC producers in the Middle East are all included in this group. These links focus on oil differential contracts determined by Brent's price. Those living in the "real world" are concerned with reducing the risk they are exposed to access a variety of distinct liquid differential markets.

Brent crude oil is compared to the price of Dubai crude oil, West Texas Intermediate, Light Louisiana Sweet (LLS), Caspian Sea oil (CPC), Russian Urals, Caspian Sea oil (RUS), BWCA (BBW and Gulf Coast Mars oil as some instances of this type of comparison. These websites provide a forum for online traders to discuss and speculate on the market's movements. The price at which crude oil is sold on the Brent market is now the most popular and extensively used measure of the market value of oil.


The crudes described above are considered the industry standard; however, many other kinds of oil from other parts of the world are also produced and refined. The choice of crude oil can be affected by several circumstances, such as the market for exports and imports and the price of certain security. There are a variety of factors, both natural and international, that might influence the price of oil. The price of crude oil, as well as its supply, could be influenced by a variety of circumstances, including political unrest, extreme weather, and pandemics on a worldwide scale.

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