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BE INFORMED ON HOW CRUDE OIL IS PRICED.

1.0 INTRODUCTION.

Yesterday, 20th of April 2020, I read many conflicting Facebook updates from my friends on crude oil Price per barrel. Many are worried about the WTI that fell below $0 per barrel as they thought it is the same Benchmark with which the Nigerian crude oil is traded.
(Nigeria uses Brent Crude as Benchmark)

Though, there is need to be worried as the Covid-19 is having a negative effect on the price of crude oil in the international market, but it is very important to know how it affects each Benchmark Crude.

I thought it wise to share my knowledge on this issue that is trending amongst Nigerian social media users. I will be sharing my knowledge on how the crude oil is priced at the international market with some popular Benchmark Crude.

1.1 WHAT IS CRUDE OIL?

Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. A type of fossil fuel, crude oil can be refined to produce usable products such as gasoline, diesel, and various other forms of petrochemicals. It is located underground and it is being extracted through drilling.

1.2 WHAT IS BENCHMARK CRUDE?

A benchmark crude or marker crude is a crude oil that is used as a reference price for buyers and sellers of crude oil.

There are many Benchmarks, but primarily we have three (3) benchmarks, which are:

1) West Texas Intermediate (WTI)

2) Brent crude, and

3) Dubai Crude.

In a clear term, Benchmark oils are used as references when pricing oils.

The Nigerian crude oil is traded with Brent crude. So when you learn about the rise or fall in the price of crude oil, ensure you find out which Benchmark is used in pricing or selling the crude oil.

1.2.1 EXAMPLES OF BENCHMARK CRUDE.

For more Clarity, let us check out some of the Benchmarks.

(1) WEST TEXAS INTERMEDIATE.

It is a light, sweet crude with an API gravity of 39.6 degrees. That gives it a specific gravity of 0.827, which means that at 60 degrees Fahrenheit (ca. 16 degree celsious) WTI is only 8/10 as heavy as water. It contains 0.24% sulfur and is refined in the Midwest. It comes from the Southwestern United States and it is probably the most famous of the bench mark oils.

(2) BRENT CRUDE.

This is the Benchmark that Nigeria uses at the moment, it is a light, sweet crude with an API gravity of 38.06 and a specific gravity of 0.835, making it slightly “heavier” than West Texas Intermediate. The sulfur content is 0.37%. The price of Brent Crude is used to set prices for roughly 2/3 of the world’s oil. It is mostly refined in Northwest Europe and is also called Brent Blend, London Brent, and Brent petroleum. The Brent field is located in the East Shetland Basin, halfway between Scotland and Norway. Brent Crude is named after a goose which comes from the North Sea.

(3) DUBAI CRUDE.

Dubai Crude is also known as Fateh.
It is generally used for pricing oil that comes from the Persian Gulf.
It is light and sour, with an API gravity of 31 degrees and a specific gravity of 0.871. It contains 2% of sulfur, which makes it 6 times sourer than Brent Crude and 8 times sourer than West Texas Intermediate. Until recently, it was the only freely traded oil from the Middle East.

(4) OPEC REFERENCE BASKET (ORB).

ORB is a weighted average of petroleum that comes from OPEC countries, It is not a specific crude. At the moment, 11 different oils are combined into the ORB. It averages an API gravity, with the present combination of 32.7 degrees and has a sulfur content of 1.77%. It was recently changed to reflect the average quality of crude oil in OPEC Member Countries. The change decreased the API and increased the sulfur content of the basket.

(5) MINAS.

Minas oil is also referred to as Sumatran Light and comes from the island of Sumatra. It is a light, sweet crude. The API gravity is approximately 35 and the specific gravity is 0.8498. It has a sulfur content of only 0.08%. It is produced at a rate of approximately 420,000 barrels per day.

(6) TAPIS.

Tapis has an API gravity of 45.2 degrees and a sulfur content of 0.0343%. These are exceptional numbers, indicating that Tapis is very light and very sweet.
Tapis is often referred to as the “World’s Costliest Oil” and comes from a single field in Malaysia. Its value comes from the fact that WTI and Brent Crude are difficult and expensive to export to Asia, also it is of extremely high quality. Unfortunately, output from the Tapis field has been falling steadily since 1998.

(7) BONNY LIGHT.

Bonny light comes from Nigeria and is a light, sweet oil. It has an API gravity of 32.9 and a sulfur content of 0.16%

( ISTHMUS-34 LIGHT.

It is produced in Mexico. It is a sour crude with and API gravity of 33.74 degrees and a sulfur content of 1.45%. Though, Mexico is not one of the members of OPEC, this oil was part of the OPEC Reference Basket. It was removed from the ORB when it was changed in 2005.

1.3 CONCLUSION.

From the foregoing, it is obvious that, the crude oil market is not govern by a single Benchmark Crude.

There are over a hundred Benchmark oils in the world, hence the price of crude oil varies per Benchmarks.

1.4 RECOMMENDATION.

Due to the the negative impact of Covid-19, the price of crude oil is going south globally regardless of the Benchmarks.

I recommend that, the Nigerian government should ensure that all the country's refineries are at full operational level and, also channel more efforts to diversified the our economy from being reliant on oil revenue.

If our refineries are functional and the economy is not monotonic (crude oil reliant), we would not have been worried about the fall in price of the crude oil in the international market. Our worries would have been minimal.

NOTE: Crude oil contents and/or features (both in words and figures) found in this article are sourced from Online Materials via Google.



Tuesday, 21st of April 2020.
Copied.

1 barrel of crude oil= how many litres?

Jamohdiva:
1 barrel of crude oil= how many litres?

159 litres

Timely and insightful thread Op. Good job.

1.4 RECOMMENDATION.

Due to the the negative impact of Covid-19, the price of crude oil is going south globally regardless of the Benchmarks.
I recommend that, the Nigerian government should ensure that all the country's refineries are at full operational level and, also channel more efforts to diversified the our economy from being reliant on oil revenue.

Reacting to OP's recommendation above:
The fluctuating price of crude due to the current pandemic, should be a wake up call for leaders who listen to reason to quickly look for ways to diversify its economy; now the prices of crude has fallen mostly influenced by the negative effect of COVID-19 ravaging the world, so chances are that it will pick up again when the pandemic clears off.

But what will happen when one day, the prices falls due to the positive effect of Technological advances, it may never pick up again, at that point what will LAZY GOVERNMENTS DO? Will they blame previous administrations? Will they be able to reasonably borrow to heap more burden on the already existing one in our debt profile?

I'm just think out loud and not referring to any government past or present (as of today).

Thanks for the enlightenment

We still need more clarity

Insightful

What about OPEC?

You did not mention their influence on oil prices..

effico:
Admin please try push this to front page.

BE INFORMED ON HOW CRUDE OIL IS PRICED.

1.0 INTRODUCTION.

Yesterday, 20th of April 2020, I read many conflicting Facebook updates from my friends on crude oil Price per barrel. Many are worried about the WTI that fell below $0 per barrel as they thought it is the same Benchmark with which the Nigerian crude oil is traded.
(Nigeria uses Brent Crude as Benchmark)

Though, there is need to be worried as the.....

You are pathetic. You stole someone else's article on Facebook, and reposted it here, without asking for his permission, or even acknowledging the source of the post.

What kind of a person are you? What you have done is called plagiarism!!

If questions are raised about the content of the article, how would you answer it? You know absolutely nothing. Someone needs to report you to the moderators.

Akunwafor:
What about OPEC?

You did not mention their influence on oil prices..

He stole the article from someone else's wall of Facebook, and reposted it here on Nairaland, as if it was written by him.

He did not acknowledge the source or even give credit to the original writer of the piece.

So how can he even answer your questions, when he knows nothing about what he copied and pasted here??

good evening everyone, this post was plagiarized it was not from the right source,
stop copying some one idea without his/her permission, is not healthy for crying out loud,

THIS ARTICLE ON HOW CRUDE OIL IS PRICED WAS WRITTEN BY MY BROTHER.
AIYEGBOKA ALABA MICHAEL