Oil pricing power

2021-07-25

International crude oil market pricing is based on the standard oil of major oil producing areas in the world. For example, in the New York Futures Exchange, its crude oil futures are based on the "intermediate base crude oil (WTI)" produced in West Texas of the United States. All crude oil produced in the United States or sold to the United States are priced with the light and low sulfur WTI as the base oil. Because of the strength of the United States as a super buyer of crude oil and the influence of the New York Futures Exchange, crude oil futures trading with WTI as the benchmark oil has become the leader in the trading volume of global commodity futures.

Generally speaking, the crude oil futures has good liquidity and high price transparency. It is one of the three benchmark prices in the world crude oil market. When the public and the media talk about how much US dollars the oil price exceeds, they mainly refer to this price. However, more than two-thirds of the world's crude oil trading volume is not based on WTI, but on the same light and low sulfur Brent crude oil from the North Sea.

On June 23, 1988, the London International Petroleum Exchange (IPE) launched Brent crude oil futures, which include northwest Europe, North Sea, Mediterranean, Africa, Yemen and other countries and regions. As this futures contract meets the needs of the oil industry, it is regarded as "a highly flexible tool for risk aversion and trading", and also ranks in the third place of the international crude oil price Big benchmark. As a result, London has become one of the three major international crude oil futures trading centers. The Brent crude oil pricing system composed of Brent crude oil futures and spot markets, at most, covers 80% of the world's crude oil trading volume. Even with the increasing importance of crude oil prices in New York, about 65% of the world's crude oil trading volume is based on North Sea Brent crude oil.

The conversion relationship between tons and barrels is: 1 ton (crude oil) = 7.33 barrels (crude oil), that is, a barrel is about 136 kg. Although there is a fixed conversion relationship between ton and barrel, because ton is the unit of mass and barrel is the unit of volume, and the range of density of crude oil is relatively large, in crude oil trading, if calculated by different units, there will be different results.

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