Economics/Oil Price


Dear Eklimur,

Normally, oil price is informed using three references: WTI, Brent, and another one that I canoot remember now (which one?).
What is the meaning of those three references?
Which one of them is of interest to Mexico? Why?

Thank you,

Hi Leonardo,

Thank you very much for posing an interesting question on current economic affairs.

To answer to your question to your satisfaction, I need first make it clear to you that you need to have a good conception about benchmark pricing in general. You can then get the real grasp of your answer in the context of benchmark oil pricing.

You may have already got an introduction to benchmark pricing in your first courses on economics and finance. However, to refresh your memory, please take it that “benchmark pricing,” is applied to many aspects of public concern, such as quality, services, attitudes and others, denoting the highest standards achieved in such spheres. Hence, benchmark pricing is the price per unit of quantity of a commodity (commodity in economics means either goods or services –here we concentrate on goods, though services may include export of manpower) traded in the international marketplace, set by the country or producers' organization that consistently exports the largest quantity or volume of the commodity or in a marketplace. Such as marketplace could be any stock exchange. A benchmark is a standard, or a set of standards, used as a point of reference for evaluating performance or level of quality. Benchmark is set periodically, usually monthly, and serves as a guideline for international trade in the commodity. So, from this conception about benchmark for a commodity –and knowing that crude oil is a commodity internationally traded –you may now get a full-dress idea about “benchmark oil pricing.”

Now come to your three references: WIT, Brent, and OPEC Reference Basket (and Dubai Crude and Urals oil).

1.   West Texas Intermediate (WTI), also known as Texas light sweet [sweet crude oil contains small amounts of hydrogen sulfide and carbon dioxide], is a grade of crude oil used as a benchmark in oil pricing.  You may know that crude oil consists of hydrocarbons of various molecular weights and other organic compounds. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. It is the underlying commodity of New York Mercantile Exchange's oil futures contracts.

The price of WTI is often referenced in news reports on oil prices, alongside the price of Brent crude from the North Sea. Other important oil markers include the Dubai Crude, Oman Crude, Urals oil and the OPEC Reference Basket. WTI is lighter and sweeter than Brent, and considerably lighter and sweeter than Dubai or Oman
2.   Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. Brent Crude is extracted from the North Sea.

3.   Dubai Crude is a medium sour crude oil extracted from Dubai. Dubai Crude is used as a price benchmark or oil marker because it is one of only a few Persian Gulf crude oils available immediately.
About two-thirds of all crude contracts around the world reference Brent Blend, making it the most widely used marker of all. These days, “Brent” actually refers to oil from four different fields in the North Sea: Brent, Forties, Oseberg and Ekofisk. WTI refers to oil extracted from wells in the U.S. and sent via pipeline to Cushing, Oklahoma. The fact that supplies are land-locked is one of the drawbacks to West Texas crude – it’s relatively expensive to ship to certain parts of the globe. This Middle Eastern crude (Dubai/Oman) is a useful reference for oil of a slightly lower grade than WTI or Brent. A “basket” product consisting of crude from Dubai, Oman or Abu Dhabi, it’s somewhat heavier and has higher sulfur content, putting it in the “sour” category.

Remember Mexico is not a part of OPEC, and the oil produced in Mexico is Isthmus-34 Light, a sour crude with and API gravity of 33.74 degrees and a sulfur content of 1.45%. Once part of the OPEC Reference Basket or ORB, it was removed from the ORB – ORB is not a specific crude, but rather is a weighted average of petroleum that comes from OPEC countries –when Isthmus-34 Light was changed in 2005.

The U.S.-based WTI is also used as a benchmark for imported crude oil that is produced in Mexico and South America as well as in Canada

I hope, Leonardo, this serves to attend to your query. This is vast topic. This is also a very current and important topic. I will be happy if my assistance has been of any help to you. My best of wishes for your research in such an important field in the globalized market that has significance for almost all the countries in the world in the present oil imbroglio.


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Eklimur Raza


It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.


About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

I teach micro- and macroeconomics at George Brown College (continuing education), Toronto, ON, Canada.

Many articles and editorials, on different subjects, in English newspapers. Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Master degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and Honors
Received First Prize in an inter-university Literary Contest.

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