Oil benchmark

Crude oil is not one product. Grades differ in density and sulphur content, and a barrel in the North Sea is not interchangeable with a barrel in Oklahoma, so the market settled on a small number of reference grades and prices everything else against them. Brent is a light, low sulphur, waterborne North Sea grade. West Texas Intermediate is lighter and lower in sulphur still, delivered inland at Cushing in Oklahoma. Dubai and Oman together form the medium, higher sulphur reference used for cargoes moving east.

A cargo of some other grade is sold at the benchmark's assessed price plus or minus a differential for its quality and for where it has to be shipped from. The benchmark price itself is normally the price of a dated futures contract on that grade rather than a barrel changing hands, which means it carries an expiry, a roll and the shape of the forward curve with it, alongside physical assessments that reporting agencies publish from deals done inside a stated window.

Two things trip readers. The oil price is not one number: a headline can refer to either benchmark, and the differential between them moves for pipeline, freight and storage reasons that have nothing to do with global demand, which is why a landlocked grade can dislocate from waterborne markets for weeks. And a benchmark is only as representative as the production behind it, which is a live argument rather than a settled one: North Sea output has declined for decades, the Brent basket has been widened more than once to keep enough physical cargoes in it, including the addition of a United States grade, and practitioners disagree about how much that changes what the benchmark measures.