Crude Oil

01

Market overview

Crude oil is priced against a handful of benchmarks — Brent in the Atlantic Basin, WTI in North America, Dubai and Oman for the flows heading to Asia — and each grade trades at a differential to its benchmark, set by quality: API gravity, which measures whether the oil is light or heavy, and sulphur content, which classifies it as sweet or sour. The end buyer is almost always a refinery, which chooses crude for compatibility with its configuration, not on price alone. Cargoes move on tankers of different sizes, with quantity and quality certified by an independent inspector at loading. Brazil holds a relevant position as an exporter, especially of pre-salt grades.

02

Trading forms

We cover spot cargoes and term supply contracts, on an FOB basis at the loading port or CIF and DES at destination. Price is normally a formula — benchmark plus differential — averaged over a window of days around the bill of lading date. Independent quantity and quality inspection, a documentary letter of credit and a contract carrying the grade specification are part of the usual structure.

03

Counterparty sought

On the sell side, producers, national oil companies and traders with a verifiable cargo allocation. On the buy side, refiners and traders able to open a payment instrument consistent with the volume. In the review we look first at the coherence between grade, volume and port: an offer that names neither the grade nor the loading port is not yet an offer.