Oil Market: NYMEX, WTI, Brent Blend and what you need to know

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Oil Market: NYMEX, WTI, Brent Blend and what you need to know
Oil Market: NYMEX, WTI, Brent Blend and what you need to know © Spencer Platt / Staff Getty Images News

The two main exchanges for trading oil are the NYMEX in New York and the IntercontinentalExchange in Atlanta, both of which are US-owned. Brent was previously listed on the International Petroleum Exchange in London. On these two markets, contracts for West Texas Intermediate and Brent Blend oil grades for immediate delivery or futures at Cushing and Sullom Voe respectively are listed.

In both, the price of oil and the quotation take place in dollars. The exchange contracts for these two oils actually only act as oil markers for all other transactions. In reality, WTI and Brent Blend oil transactions make up only a small part of the total trades, but the prices of these trades are used as a reference price for others.

Brent Blend is made up of a basket of 15 oils extracted from the North Sea. In the past, oil extracted from a single oil field was used. Towards the end of the 1990s, the number of transactions involving this oil had become insufficient to guarantee that Brent oil trades were representative of the trading price and therefore it was decided to use a larger number of transactions and therefore to include trades concerning other petroleum crudes.

Oil Market: NYMEX, WTI, Brent Blend and what you need to know

WTI is mainly used to price oils produced in North and South America; Brent Blend is used for those produced in Europe, Africa and the Middle East. More than 60% of transactions are made using the Brent Blend as a reference.

Other references exist, but are widely used less than WTI and Brent Blend. In trading practice, each oil is priced relative to the benchmark plus a premium difference, which can be negative or positive. The difference between the oil in question and the reference oil is essentially a function of quality.

Oils that are lighter or have a lower sulfur content than their reference oil will trade at a positive premium; the opposite if they are heavier or have a higher sulfur content. Brent reached its historic low on December 10, 1998 when it was quoted at $9.55 per barrel. The all-time high was on 11 July 2008 when prices recorded $147.25 per barrel.

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