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Crude Oil Prices Definition

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Crude oil prices Photo: David McNew/Getty Images
Crude oil prices measure the spot price of various barrels of oil, most commonly either the West Texas Intermediate or the Brent Blend. The OPEC basket price and the NMEX futures price are also sometimes quoted.

West Texas Intermediate (WTI) crude oil is of very high quality, because it is light-weight and has low sulphur content. For these reasons, it is often referred to as “light, sweet” crude oil. These properties make it excellent for making gasoline, which is why it is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5-6 per barrel premium to the OPEC basket price and about $1-2 per-barrel premium to Brent.

Brent Blend is a combination of crude oil from 15 different oil fields in the North Sea. It is less “light” and “sweet” than WTI, but still excellent for making gasoline. It is primarily refined in Northwest Europe, and is the major benchmark for other crude oils in Europe or Africa. For example, prices for other crude oils in these two continents are often priced as a differential to Brent, i.e., Brent minus $0.50. Brent blend is generally priced at about a $4 per barrel premium to the OPEC Basket price or about a $1-2 per barrel discount to WTI.

The OPEC Basket Price is an average of the prices of oil from Algeria, Indonesia, Nigeria, Saudi Arabia, Dubai, Venezuela, and Mexico. OPEC uses the price of this basket to monitor world oil market conditions. OPEC prices are lower because the oil from some of the countries have higher sulphur content, making them more “sour”, and therefore less useful for making gasoline. The NYMEX futures price for crude oil is reported in almost every major U.S. newspaper.

It is the value of a 1,000 barrels of oil, usually WTI at some agreed upon time in the future. In this way, the NYMEX gives a forecast of what oil traders think the WTI spot price will be in the future. However, the futures price usually follows the spot price pretty closely, since the oil traders can’t know about sudden disruptions to the oil supply, etc.

How Crude Oil Prices Affect the U.S. Economy:

Higher crude oil prices directly affect the cost of gasoline, home heating oil, manufacturing and electric power generation. How much? According to the EIA, 96% of transportation relies on oil, 43% of industrial product, 21% of residential and commercial, and (only) 3% of electric power. However, if oil prices rise, then so does the price of natural gas, which is used to fuel 14% of electric power generation, 73% of residential and commercial, and 39% of industrial production. (Source: EIA, U.S. Primary Energy Consumption by Source and Sector, 2004)

How Crude Oil Prices Affects You:

For this reason, higher oil prices increase the cost of everything you buy, especially food. That's because a lot of food costs depends on transportation. High oil prices will ultimately increase inflation.

Crude oil prices most directly affect you in higher gasoline prices and higher home heating oil prices (primarily for those of you who live in the Northeast U.S.) Crude oil accounts for 55% of the price of gasoline, while distribution and taxes influence the remaining 45%.

Crude Oil Price Trends:

Oil prices usually go up in the summer, driven by high demand for gasoline during vacation driving times. Sometimes it will drop further in the winter, if there is lower than expected demand for home heating oil, due to warmer weather. During 2008, there was fear that economic growth from China and the U.S. would create so much demand for oil that it would overtake supply, driving up prices. However, most analysts now realize that such a sudden increase in oil prices was due to increased investment by hedge fund and futures traders.

In addition, oil prices seem to be rising earlier and earlier each spring. In 2013, prices started rising in January, reaching a peak of $118.90 in February. In 2012, oil prices started rising in February. The price for a barrel of WTI crude broke above $100 a barrel on February 13, 2012. In 2011, prices didn't break $100 a barrel until March 2, and didn't peak until May at $113 a barrel.

Fortunately, none of these peaks were as high as the June 2008 all-time high, when the price of WTI crude oil hit $143.68 per barrel. By December, it plummeted to a low of $43.70 per barrel. The U.S. average retail price for regular gasoline also hit a peak in July 2008 of $4.17, rising as high as $5 a gallon in some areas. By December, it had also dropped to $1.87 a gallon. For more, see Gas Prices in 2008. (Source: EIA Oil Price Trends) Article update August 28, 2013

Oil Price History:

The EIA provides the average annual price for a barrel of WTI crude oil since 1986:
  • 1986 -- $15.05
  • 1987 -- $19.20
  • 1988 -- $15.97
  • 1989 -- $19.64
  • 1990 -- $24.53
  • 1991 -- $21.54
  • 1992 -- $20.58
  • 1993 -- $18.43
  • 1994 -- $17.20
  • 1995 -- $18.43
  • 1996 -- $22.12
  • 1997 -- $20.61
  • 1998 -- $14.42
  • 1999 -- $19.34
  • 2000 -- $30.38
  • 2001 -- $25.98
  • 2002 -- $26.18
  • 2003 -- $31.08
  • 2004 -- $41.51
  • 2005 -- $56.64
  • 2006 -- $66.05
  • 2007 -- $72.34
  • 2008 -- $99.67
  • 2009 -- $61.95
  • 2010 -- $79.48
  • 2011 -- $94.88
  • 2012 -- $94.05
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