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Crude Oil – the different benchmarks for traders and investors
The crude oil operations are carried out worldwide, and there can be a bewildering variety of contracts and vehicles at different prices, so it can be confusing for traders looking for a suitable reference point. In addition, each type of vehicle has different options and futures with different expiration dates, so this short paper describes the main vehicle for traders CFD.
The two main crude oils, which are themselves traded or whose prices are reflected in other types of crude oil and West Texas Intermediate are Brent.
Crudes
The main differences in the type of oil extracted is related to the viscosity and sulfur content. The viscosity is measured by API gravity, which is a measure of how heavy or light petroleum liquid is compared with the water. The high viscous crude oils are called "heavy" and those with a lower figure of the API are classified as "light."
The crude with higher sulfur content are called 'green', and lower sulfides are "sweet."
The heavier and sour crude oil extracted is more difficult and expensive it is to become usable products refined, so the reference points are usually chosen by the light, sweet crude.
Typically, there is a price difference between light and heavy crude questions bitter sweet, but the proportion has increased in recent years because of the decline in the supply of light sweet crude, which means. Superior quality crude supplies are always consumed first, and the world is increasingly dependent on an inferior product.
OPEC data suggests that global production of light sweet crude fell between 2000 and 2004, so this could be seen as the beginning of "peak oil scenario."
West Texas Intermediate (WTI)
This is an important benchmark for oil traders and is the underlying commodity future of New York Mercantile Exchange, oil contracts. Although WTI has traditionally been priced higher than Brent crude, has hired a short time and even reverse sometimes.
WTI is a light crude with an API gravity of 39.6 degrees, is lighter than Brent crude. It contains about 0.24% sulfur, and it is also sweeter than Brent. It is of very high quality and is excellent for refining a larger portion of gasoline.
Although WTI crude oil production is declining, remains the major benchmark of crude oil in the Americas. WTI is generally priced at about $ 5 to $ 6 per barrel premium to the price of OPEC basket (see below) and about $ 1 to $ 2 per barrel premium to Brent, but daily the relationship between these prices can vary widely.
Our analysis of crude oil in the Blue Index WTI as a benchmark for U.S. prices oil.
Brent
Brent, or actually Brent Blend is a combination of crude oil from 15 Brent oil fields in various systems and Ninian in the North Sea. Its weight is 38.3 degrees API, slightly heavier than WTI, but the light yet, and contains about 0.37% of sulfur, once as sweet, but less so than WTI.
Brent blend is ideal for making gasoline and middle distillates, which are consumed in large quantities in the North Western Europe, where it usually is refined. There are times though when the arbitrage between Brent and other crude oils makes it worthy of export. Brent has been known to be refined in the U.S. (generally the East Coast or Gulf Coast) or the Mediterranean region.
Brent production is also declining, but remains the major benchmark for other crude oils in Europe or Africa. Usually priced around $ 4 per barrel premium over OPEC basket price or a discount of $ 1 to $ 2 per barrel for WTI, although daily price ratios can vary widely.
NYMEX Futures
The NYMEX (New York Mercantile Exchange) futures price of crude oil, which is another important reference point, represents on a per barrel, the market value of a contract futures to buy or sell 1,000 barrels of WTI or some other light, sweet crude oil at a given time.
Although most of the NYMEX crude oil contracts never run for physical delivery, the NYMEX market supply price information important for U.S. buyers and sellers crude oil in the U.S. and around the world, taking the benchmark WTI crude for many different, especially in the Americas.
Typically, the NYMEX futures prices tracks very closely the WTI spot price as the previous one, although since the NYMEX futures contract for a given month expires 3 days before the WTI spot trading for the same month ceases, there can be a period in which the difference between the NYMEX futures price and the WTI spot price widens noticeably.
OPEC Basket Price
For crude oil prices more detailed, OPEC collects price data of a basket of seven crude oils, including: Algeria's Sahara Blend, Indonesia's Minas, Nigeria Bonny Light, Saudi Arabia's Arab Light, Dubai Fateh, Venezuela Tia Juana Light, and Mexico's Isthmus (a non-OPEC crude oil).
OPEC uses the price of this basket to monitor the conditions of the world oil market. Because the WTI crude oil is a very light, sweet crude generally more expensive than the OPEC basket, which is an average of light sweet crudes such as Algeria's Sahara Blend oil and heavier sour crude, such as the Dubai Fateh. Brent is also lighter, sweeter and more expensive than the OPEC basket, although less than WTI.
Imported Refiner Acquisition Cost (IRAC)
The imported refiner acquisition cost is a volume weighted average price of imported crude oil in the U.S. for a specified period. U.S. matters more types of crude oil than any other and it is believed that this may represent the world price of oil more true among all published crude oil prices.
The IRAC is also usually similar to the basket price of OPEC, so it also is about $ 6 to $ 8 per barrel less than WTI spot price and about $ 5 to $ 6 barrel less than the price of Brent. But because the IRAC is not reported by the EIA (U.S. Energy Information Administration) to almost 2 months after measured end of the month is not a particularly timely as current prices, as is typically used for longer term analysis.
While overall assessment environmental impact is the only organization that uses the IRAC, is used by the EIA as the world price of oil in its publications, including monthly Short-Term Outlook for Energy and the Annual Energy Outlook and International Energy Outlook, also released a year, and provide a forecast annual rate of about 20 years in the future.
About the Author
Mike Estrey is the Head of Research for Blue Index, specialists in Online CFD Trading, Contracts for Difference and Online Forex Trading.
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