Benchmark crude oil is a valuable tool for traders, investors, analysts and others to determine the prices of multiple grades of crude oil varieties and blends.
The most widely used benchmarks are associated with crude oil that has 4 common qualities:
-
stable and ample production
-
a transparent, free-flowing market located in a geopolitically and financially stable region to encourage market interactions
-
adequate storage to encourage market development
-
and/or delivery points at locations suitable for trade with other market hubs, enabling arbitrage (profit opportunities) so that prices reflect global supply and demand
A benchmark provides a starting point and standard of comparison for evaluating the many different varieties of crude oil.
Benchmark crude oil primarily tracks these 3 main types of oil:
- West Texas Intermediate (WTI), production comes from oil fields across the U.S. and most refining happens in the Midwest, Gulf South states
- Brent Crude comes from reserves in the North Sea
- Dubai Crude often provides the benchmark for pricing exports to Asia
While these 3 crudes listed above serve as the benchmark for the crude oil industry, many other types of oil from around the world are produced and refined.
The selection of a specific crude oil depends on the export and import market, the specific security pricing, and other factors.
According to World Crude Oil Data (the most recent figures as of 2021), more than 200 varieties of crude oil are actively traded in the market.
