Oil Benchmarks
Prerequisites
When the news says "oil is $80 a barrel," it means one specific type of oil priced at one specific delivery point. There are over 150 crude oil varieties, each with different chemistry, and their prices can diverge by $20+ per barrel. Three benchmarks anchor global oil pricing, and understanding which one is quoted tells you more than the price itself.
Brent Crude (North Sea) is the global benchmark, pricing roughly three-quarters of internationally traded oil. It is a light, sweet crude (low sulfur) priced for delivery at Sullom Voe, Scotland. WTI (West Texas Intermediate) is the US benchmark, priced at Cushing, Oklahoma. It is also light and sweet but landlocked, which historically caused it to trade at a discount to Brent when US pipelines were congested. Dubai/Oman benchmarks price Middle Eastern medium-sour crudes for Asian buyers.
The Brent-WTI spread. In 2011, WTI traded $25 below Brent because booming US shale production overwhelmed pipeline capacity to Cushing. Oil was physically trapped. New pipelines to the Gulf Coast closed the spread to $3-5 by 2015.
Why does the spread between benchmarks matter for policy?
Because it reveals infrastructure constraints. A wide Brent-WTI spread means US producers are earning less than global prices due to transportation bottlenecks. A narrowing spread means infrastructure has caught up. A large Dubai-Brent spread signals refining margin differences between sweet and sour crude. Benchmark spreads are diagnostic: they tell you where physical infrastructure or quality differences are creating price disconnects.
In 2011, WTI traded $25 below Brent despite both being similar-quality light sweet crudes. The discount existed because:
The spread was an infrastructure problem, not a quality or demand problem. When pipelines cannot move oil from where it is produced to where it can be exported or refined, local prices collapse even as global prices hold.
The answer is DLesson complete
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