The recent rise in the price of oil has focused attention on the markets where the "black gold" is traded. But what exactly is being traded, where and how? BBC News Online has the bluffer's guide to world oil markets. Crude oil, also known as petroleum, is the world's most actively traded commodity. The largest markets are in London, New York and Singapore but crude oil and refined products - such as gasoline (petrol) and heating oil - are bought and sold all over the world. Crude oil comes in many varieties and qualities, depending on its specific gravity and sulphur content which depend on where it has been pumped from. If no other information is given, an oil price appearing in UK and other European media reports will probably refer to the price of a barrel of Brent blend crude oil from the North Sea sold at London's International Petroleum Exchange (IPE). Futures contract This would commonly be in a futures contract for delivery in the following month. In this type of transaction, the buyer agrees to take delivery and the seller agrees to provide a fixed amount of oil at a pre-arranged price at a specified location. Futures contracts are only traded on regulated exchanges and are settled (paid) daily, based on their current value in the marketplace. The minimum purchase is 1,000 barrels. World benchmark Because there are so many different varieties and grades of crude oil, buyers and sellers have found it easier to refer to a limited number of reference, or benchmark, crude oils. Other varieties are then priced at a discount or premium, according to their quality. Brent is generally accepted to be the world benchmark, although sales volumes of Brent itself are far below those of, for example, some Saudi Arabian crude oils. According to the IPE, Brent is used to price two thirds of the world's internationally traded crude oil supplies. In the Gulf, Dubai crude is used as a benchmark to price sales of other regional crudes into Asia. This is not because there are more supplies of Dubai crude oil than of any other grade - there are not - but because it is one of the few Gulf crudes available in single, on the spot, sales as opposed to long term supply contracts. However, if supplies became extremely limited and price swings became exaggerated, a new benchmark would have to be found. US benchmark In the United States, the benchmark is West Texas Intermediate (WTI). This means that crude oil sales into the US are usually priced in relation to WTI. However, crude prices on the New York Mercantile Exchange generally refer to 'light, sweet crude'. This may be any of a number of US domestic or foreign crudes but all will have a specific gravity and sulphur content within a certain range. 'Sweet' crude is defined as having a sulphur content of less than 0.5%. Oil containing more than 2.5% sulphur by weight is said to be 'sour'. Opec's basket price is an average of the prices for: Saudi Arabia's Arab Light The United Arab Emirates's Dubai Nigeria's Bonny Light Algeria's Saharan Blend Indonesia's Minas Venezuela's Tia Juana Light and Mexico's Isthmus. Slightly confusingly, the Organisation of Petroleum Exporting Countries (Opec) - a cartel of some of the world's leading producers - has its own reference. Opec basket Known as the Opec basket price, this is an average of seven - always the same seven - crudes. Six of these are produced by Opec members while the seventh, Isthmus, is from Mexico. When Opec says it wants oil prices to remain in a range of $22-28 a barrel, it is referring to this basket price. In practice, the price differences between Brent, WTI and the Opec basket are not large. Crude prices also correlate closely with each other. At the close of trade on 30 August, IPE Brent futures stood at $31.98 a barrel. Nymex light, sweet crude was at $33.32 a barrel while the Opec basket price was $31.70 a barrel. _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
