When determining crude oil price, it is typically referenced to a predetermined category of crude oil both widely accepted and actively traded. It is a misconception that there is single market index/benchmark to crude oil price.
The most acknowledged benchmarks are Brent Crude Oil, WTI Crude Oil and Dubai/Oman Crude Oil. These became the leading benchmarks due to the following characteristics:
1. Their significant and steady production;
2. Lucid market with market participants possessing perfect and timely information;
3. Minimal arbitrage opportunity due to easy and economical delivery of product from one standpoint to another.
When deciding on which index to use to peg oil prices, one needs to choose the index with most similar characteristics with reference to the quality (composition) of oil and the location of oil facility.
Brent Crude Oil, is the most widely applied benchmark to low density, sweet crude oil (Low sulfur content) produced or traded in Europe, Australia, Mediterranean, Africa and Asia.
West Texas Intermediate (WTI), is the most popular benchmark for different types of crude oil produced in United States, such as Mars - Medium Sour (higher sulfur content) crude oil extracted from the wells in the gulf of Mexico, Bakken - Light Sweet crude oil produced in North Dakota. The expense of transportation to other parts of the globe restricts the application to the Mexico, South America and Canada.
Dubai/Oman, the third main benchmarking index is widely used for medium sour crude oil typically from Persian Gulf and exported to the Asian Market.
Picture reference: Investopedia.com
I hope this brings some clarity on the reason for multiple indexes available for crude oil prices.
