The media often speaks about crude oil being of varying types and qualities. Crude oil is classified by the petrochemicals it is comprised of when energy companies like Triple Diamond energy Corp. extract it from the earth. There are also other factors upon which the classification is based including the weight of the oil and its sulfur content. Classification by weight includes three categories: light, intermediate and heavy. These categories describe the weight of a fixed volume of oil at a specific temperature and pressure.

The sulfur content of the oil determines whether it is to be classified as sweet or sour. Crude oil with low sulfur content is labeled sweet while high sulfur content is classified as sour. Sour crude takes a lengthier refining process to remove the sulfur from it and therefore the cost of refining are higher.

When oil companies like Triple Diamond Energy Corp. drill for oil, they analyze the chemical properties of the crude oil they find. Molecular characteristics, which vary depending on the location of the oil source, will determine the price of the crude oil. Impure crude oil with high levels of sulfur will drive up both crude and refined oil prices since the refining process will be more expensive. The pricing reference determined will later become a crude oil benchmark.

Global Oil Trade

The global trade in crude oils recognizes 161 different crude oil benchmarks. Among the highly traded oils are West Texas Intermediate and another crude oil standard found in the North Sea called Brent. Brent is an inferior grade that requires a greater level of refining as it contains a higher level of sulfur.

West Texas Intermediate, or WTI as it is commonly called, is the most popular benchmark. This is the type of light, sweet crude oil that most refineries in the US were initially designed to work with WTI production has been falling over the years, but it still is the predominant standard for North American oil. The New York Mercantile Exchange has chosen WTI as the underlying commodity for its oil futures contract. Brent is also gaining media publicity as WTI productions start falling.

The world wide standard for oil production has become Brent, and its price is followed all over the world by oil traders and oil futures traders. Brent is now produced from Africa and Europe as well in the Middle East. Its price is determined as per the price of the original Brent crude. As it is the worldwide standard, disruptions in Brent supply upset more people than disruptions in WTI supply. Usually WTI is about a dollar more per barrel as it has lower sulfur content. However, Brent prices have recently overshot that of WTI as supplies of WTI have decreased.

The Crude Oil Situation

Since 2007, the depletion of the North Sea oil fields has caused Brent crude futures to trade at higher prices. Another factor that determines oil prices are the logistics involved in crude transportation used by companies like Triple Diamond Energy Corp. Since crude oil in the US is transported via pipelines, whatever amount of crude is produced must be used. If a demand supply difference exists then prices may fluctuate as they did in April of 2007 when Cushing, a major oil refining hub in Oklahoma, had a huge increase in supply causing it to reduce its oil prices by $3 a barrel for all short term contracts.

These situations are causing the two major world oil benchmarks to drift farther apart from each other in price. In terms of global trends, it seems that they may grow farther apart, causing greater difficulties in pricing crude oil.