“The price of oil” is a phrase that will keep flashing frequently in the news over the next few months, as the world struggles with an energy shortage caused by the Russia-Ukraine war. To people in the oil business, though, there is no single, defining price of oil.
Instead, there are several, each tracking a different kind of oil. Often, the measures sync closely with each other; they are, after all, similar commodities in the same market. But sometimes they diverge wildly. The three most common oil indices are:
- Brent: Originally, Brent crude referred to crude oil pumped out of a North Sea oilfield more than 100 miles off the coast of Scotland. That oilfield has now been decommissioned, but the name lives on to refer to a mix of oil from many different North Sea deposits. Its sulfur content is around 0.37%, making it “sweet” in oil lingo. The Brent crude index is used heavily in Europe but also by OPEC, a cartel of countries that produce about 40% of the world’s oil and 60% of world oil exports.
- Dubai: The benchmark for oil prices in Asia, Dubai crude is “sour” (i.e., high in sulfur) and has a “medium” viscosity.
- West Texas Intermediate: The American index refers to crude that is even sweeter than Brent. The name is a misnomer; the oil comes from Texas but also from other US oilfields, and is then refined in the Midwest. Its home, if anywhere, is Cushing, Oklahoma, where WTI oil is stored and transferred, and where prices are settled. WTI is the lightest of the three benchmarks, making it easiest to refine.
The wildest divergence in these indices over the last four decades came around 2012, when WTI dropped sharply away from Brent. The North Sea’s fields were predicted to run dry soon, pushing Brent prices up. At the same time, the US boosted its shale production in 2008 and restricted the capacity of domestic pipelines, so oil inventories soared, pressing WTI prices down.
At the moment, the three indices are closer to each other than they’ve been since 2020. This makes sense: just as the pandemic was a global event affecting all three oil-producing regions two years ago, the Ukraine war similarly delivers a uniform shock to the oil market’s indices.
The main divergence now comes between Brent and another index: Russia’s Urals blend. As a grade of crude, Urals is a mix of heavy oil from the Volga and Urals region and a lighter oil from Siberia. Its sulfur content is around 1.48%—”medium sour.” Urals grade oil makes for more than 80% of Russian oil exports. Until the beginning of the Ukraine war, it satisfied a third of European energy needs.
During the war, as buyers for Urals crude dwindled, Russia attempted, quite literally, to sweeten the deal, making its Urals blend lighter and less sour, and therefore easier to refine. Even so, the price of Urals crude languishes around $30 less per barrel than Brent. When news headlines talk about $100 oil, you can be sure it doesn’t refer to Urals crude. At least, not yet.