Crude Oil Pricing

Crude oil Pricing

Crude oil price depends on demand and supply, cost of production, competitors (OPEC, American Shale and Russia) and geopolitical situations. Crude oil prices have significant impact all over the world in terms of development and growth. Crude oil is the root raw material from which various petroleum products are derived. Oil prices are determined by overall demand-supply conditions in the global market, especially in the major refining centres like Singapore, North-west Europe and US Gulf Coast, and in the major supply centre - the Middle East. The prices of crude oil construct the base for petroleum product prices.

As there are several different varieties and grades of crude oil - Brent (in Europe and Africa), Dubai and Oman (in the Middle East), and Tapis and Dubai (in Asia), WTI (in the US), are used as benchmark crude oil. Other varieties are priced at a discount or premium according to quality. Therefore, in times of low supply of a particular variety of crude oil, this premium will rise and gradually drag up the marker crude oil price, while in times of excess supply, a reduced premium drag down the marker crude oil price.

Coverage of major benchmark (Brent, WTI, Dubai)

Brent is the reference for about two-thirds of the oil traded around the world, WTI the dominant benchmark in the U.S. and Dubai/Oman is influential in the Asian market.

Source- Intercontinental Exchange Figure (a)

Price difference between Brent and Dubai crude oil-

Figure (b) Source: Crisil Research

Average spread till July 2015

As shown in figure (b) that the price differs from one benchmark to the other. Here we have seen the difference between Brent and Dubai crude oil; likewise all others differ from each other.

Crude oil price movement over the years and reasons for the same...