In crude oil futures trading, you will often hear the words “light, sweet” or “brent” when crude oil price is quoted or market information is given. While it may not seem relevant, these words mean a lot to traders and actually refer to different crude oil futures markets.

Crude oil is classified by the petroleum industry according to the geographic region that produces it, its density, and its sulfur content. Since these characteristics often determine costs of transportation (geographic origin), gasoline yield (lighter density oils produce a higher gasoline yield) and refining needs (high sulfur content means more refining) they can often affect price of crude oil.

The crude oil delivered at the hub of supply in Cushing, Oklahoma is the West Texas Intermediate (WTI) variety, better known as light, sweet crude. This crude oil is lighter than brent crude and contains around .24% sulfur, making it a sweet crude. This is the underlying crude oil of the futures contract on NYMEX. Some light sweet crude oil comes from the Midwest and Gulf Coast regions of the United States. Light sweet crude oil can often, but is not guaranteed to, trade at a premium to other crude oil types since it produces high fractions of gasoline, kerosene, and high quality diesel. Historic prices for light sweet crude oil can be found at the Energy Information Administration’s website – www.eia.doe.gov

Another benchmark for crude oil price is brent crude oil from the North Sea. Brent is still light oil but not as light as WTI and has higher sulfur content at .37%. Brent crude oil futures are traded on NYMEX and the Intercontinental Exchange (ICE). Brent crude is used in production of gasoline and middle distillates such as kerosene and diesel.

Although much focus is given to the Middle East, its sour crude production levels and the actions of OPEC, these two crude oil price benchmarks of light sweet crude oil and brent crude oil remind us that the United States and the North Sea remain important areas for crude oil production. In fact, the United States is the oldest global producer of crude oil and has produced more crude oil than any other country when considered cumulatively. The current debates regarding finite fields and the environmental impact of crude oil may be interesting and also may have some bearing on crude oil prices and the crude oil futures markets. Whether light sweet crude futures or brent crude futures and they may continue to be volatile.

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.