Crude oil's value is based on its refined use. The primary use dictated by current global demand is for fuels like gasoline, diesel, heating oil, and jet fuel to run the equipment that support our ways of life. The various characteristics/properties of crude from around the world - referred to euphemistically in industry jargon as light, sweet, intermediate, sour, heavy, etc. - contain differing amounts of the various hydrocarbons and impurities. Their locations around the globe also speak to the costs of getting the oil to local refineries and markets - thereby establishing their relative value for the products in demand.
So, with all the different combinations of crude, how does anyone keep the relative ratings straight? Is Kern River crude more valuable than Nigeria's Bonny Light? Well, that depends on the end product that is desired, where it is to be refined, and...the market price To ease comparisons, the two predominant crude oil exchanges: The New York Mercantile Exchange (NYMEX) and The International Petroleum Exchange (IPE), based in London, England, have established benchmark crudes from which other crudes are compared. In New York, the benchmark is West Texas Intermediate (WTI) crude oil, while in London it is the North Sea's Brent crude.
The price of crude oil for immediate delivery (spot price) is set by the transactions that occur at the exchanges (essentially at NYMEX and IPE) throughout the day. The transactions are made based on the sellers' and purchasers' assessments of supply and demand.
Kern River crude's value comparison with WTI or Brent and likewise, Nigeria's comparison with WTI or Brent allows a buyer to purchase the best valued crude. Along with the benchmark, the benchmark crude oil's delivery terms are also specified with the exchanges. For example, the spot price for WTI is in Cushing, Oklahoma; for natural gas, it is at Henry's Hub in Erath, Louisiana; and for gasoline and heating oil it is at New York Harbor.
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