Global Crude Oil Benchmarks

A crude oil benchmark is a standard type of crude oil whose price is used as a reference for buying and selling other types of oil. There are hundreds of kinds of crude in the world, each a little different. Instead of setting a separate price for each one from scratch, traders take a well-known benchmark price and add or subtract a small amount.

The two most important benchmarks are Brent, from the North Sea in Europe, and West Texas Intermediate (WTI), from the United States. When the news says "oil is at $97", it usually means Brent.

Why do benchmarks exist?

Think of the price of gold in a jewellery shop. The shop does not invent a price; it starts from the day's standard gold rate and adjusts for purity and making charges. Oil works the same way. A benchmark must be produced in large amounts, traded by many buyers and sellers, and easy to deliver, so that no single company can control its price. This makes the price trustworthy for everyone, from a refinery in Gujarat to a government in the Gulf.

What makes one crude different from another?

Two qualities matter most:

• Light or heavy: This tells how thick (dense) the oil is. It is measured by API gravity, a scale set by the American Petroleum Institute. A higher API number means lighter oil. Oil above about 31.1° API is called light, between about 22.3° and 31.1° is medium, and below 22.3° is heavy. Light oil gives more petrol and diesel from each barrel.
• Sweet or sour: This tells how much sulphur the oil contains. Oil with less than about 0.5% sulphur is sweet; more than that is sour. Sulphur must be removed at the refinery, which costs money and needs special equipment.

So light, sweet crude is the easiest to refine and usually sells at a higher price. Heavy, sour crude is cheaper.

Brent: the world's main benchmark

• Origin: Named after the Brent oilfield in the North Sea, between the United Kingdom and Norway, which began production in the 1970s.
• Today's basket: The original Brent field now produces very little. So the benchmark is based on a group of North Sea crudes, known as BFOET: Brent, Forties, Oseberg, Ekofisk and Troll. From June 2023, the price reporting agency Platts added WTI Midland, an American crude shipped across the Atlantic, to the "Dated Brent" basket. This was the first time a crude from outside the North Sea joined Brent.
• Quality: Light and sweet: roughly 38° API and about 0.37% sulphur.
• Trading: Brent futures were launched in June 1988 on London's International Petroleum Exchange, which is now ICE Futures Europe.
• Why it matters: Because Brent is sea-borne (loaded onto ships), it can be delivered anywhere. Most internationally traded crude, including oil from Africa, Europe and much of West Asia, is priced with reference to Brent.

WTI: the American benchmark

• Origin: Light crude produced mainly in Texas and nearby US states.
• Delivery point: Cushing, Oklahoma, a small inland town that is a giant hub of pipelines and storage tanks.
• Quality: Even lighter and sweeter than Brent: about 39.6° API and about 0.24% sulphur.
• Trading: WTI futures were introduced in 1983 on the New York Mercantile Exchange (NYMEX).
• Why it is usually cheaper than Brent: WTI is delivered inland, at Cushing, so it must travel by pipeline before it can reach a ship. That extra transport cost usually keeps it a few dollars below Brent, as in this news ($90.51 vs $97.48).

Other benchmarks you should know

• Dubai and Oman: Medium, sour crudes from the Persian Gulf. Their prices are the main reference for Middle Eastern oil sold to Asia, including India.
• Urals: Russia's main export blend, a medium sour crude. It usually trades below Brent, and the G7 price cap on Russian oil works against this kind of price.
• OPEC Reference Basket: An average price of crudes from OPEC member countries, used by OPEC to watch the market. It is not a traded benchmark.

How does benchmark pricing work in practice?

1. A refinery and a seller agree on a formula, such as "Dated Brent plus $1.20" for a particular cargo.
2. Price reporting agencies, such as Platts and Argus, publish the benchmark price every day based on real trades.
3. The final price is fixed using the benchmark on the delivery dates. If Brent rises, every cargo linked to Brent becomes costlier.

Spot price vs futures price

• The spot price is the price for oil delivered almost immediately.
• The futures price is the price agreed today for oil to be delivered on a fixed future date. Futures let buyers and sellers protect themselves from price swings (this is called hedging). The $97.48 Brent price in this news is a futures price.

A famous example: negative oil prices

On 20 April 2020, during the COVID-19 lockdowns, the WTI futures contract for May delivery fell to minus $37.63 a barrel. Demand had collapsed, and storage tanks at Cushing were nearly full. Traders holding contracts that required them to take delivery had nowhere to store the oil, so they paid others to take it. Brent, which is sea-borne and not tied to one inland storage hub, did not go negative.

India's position and Indian examples

• India imports about 88% of the crude oil it uses (approximately, for 2023-24 to 2025-26, according to official data). So global benchmark prices directly affect India's import bill, the rupee, inflation and the government's budget.
• India tracks the Indian Basket of crude oil. It is calculated by the Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas. It is a weighted average of a sour grade (average of Dubai and Oman) and a sweet grade (Dated Brent). The weights depend on how much of each type Indian refineries processed in the previous year. For many years, sour crude had a weight of about 75–79%. In 2026, the weight given to Brent was reported to have been raised sharply [Unverified].
• When the Indian Basket rises, oil marketing companies (like Indian Oil, BPCL and HPCL) face higher costs. Either retail petrol and diesel prices go up, or the companies and government absorb the loss through lower margins or tax cuts.
• To cushion supply shocks, India keeps Strategic Petroleum Reserves of 5.33 million tonnes in underground caverns at Visakhapatnam (Andhra Pradesh), Mangaluru and Padur (both in Karnataka).

Commonly confused concepts

• Brent vs WTI: Both are light, sweet crudes. Brent is sea-borne and global (North Sea basket, traded in London); WTI is the US inland benchmark (delivered at Cushing, traded in New York). WTI is slightly lighter and sweeter, but usually cheaper because of location.
• Brent vs Dubai/Oman: Brent is light and sweet; Dubai and Oman are medium and sour. Asian buyers of Gulf oil mostly use Dubai/Oman.
• Indian Basket vs OPEC Basket: The Indian Basket is India's own weighted average (PPAC). The OPEC Reference Basket is OPEC's average of its members' crudes.
• Light/heavy vs sweet/sour: Light/heavy is about density (API gravity). Sweet/sour is about sulphur. A crude can be light and sour, or heavy and sweet.
• Dated Brent vs Brent futures: Dated Brent is the price of physical cargoes loading soon. Brent futures are contracts for future months traded on an exchange.

Issues, criticism and the way forward

• Shrinking North Sea output: As old fields decline, fewer cargoes back the Brent price, which raises the risk of price manipulation. Adding WTI Midland was a fix for this.
• Speculation and volatility: Futures markets attract financial traders, not just oil buyers. Critics say this can cause sudden swings, such as the 17% weekly fall in this news, unrelated to physical supply.
• Western-centred pricing: Most benchmarks are in Europe and the US and priced in dollars. Large Asian buyers like India and China have little say. Some suggest Asian benchmarks or trade in local currencies.
• Geopolitical risk: Wars and chokepoints add a "risk premium" to prices. When the risk fades, prices fall quickly, as when new strikes looked less likely.
• Way forward for India: Diversify suppliers, build more strategic reserves, sign long-term supply contracts, and reduce oil demand through ethanol blending, electric vehicles and public transport.

Concepts to Know

• Barrel: The standard unit for oil. One barrel is about 159 litres.
• Benchmark: A standard reference price that other prices are compared to and set from.
• Futures contract: An agreement made today to buy or sell something at a fixed price on a future date.
• Hedging: Using contracts like futures to protect yourself against a future price change, similar to insurance.
• Price reporting agency: A private company (such as Platts or Argus) that collects trade data and publishes daily commodity prices.
• Glut: A situation where there is far more of something on the market than buyers want, which pushes its price down.
• Risk premium: Extra money added to a price because buyers fear a future shortage.