ORB & Dubai Crude

Besides West Texas Intermediate (WTI)  and Brent Crude, the other trading benchmarks are the OPEC Reference Basket and the Dubai Crude.

The OPEC Reference Basket (ORB), also referred to as the OPEC Basket, is a weighted average of oil prices collected from various oil producing countries. This average is determined according to the production and exports of each country and is used as a reference point by OPEC* to monitor worldwide oil market conditions.

The new ORB, introduced on 16 June 2005, is currently made of the following:

  • Saharan Blend (Algeria)
  • Girassol (from Angola)
  • Oriente (from Ecuador)
  • Iran Heavy (from Islamic Republic of Iran)
  • Basra Light (from Iraq)
  • Kuwait Export (from Kuwait)
  • Es Sider (from Libya)
  • Bonny Light (from Nigeria)
  • Qatar Marine (from Qatar)
  • Arab Light (from Saudi Arabia)
  • Murban (from UAE)
  • Merey (from Venezuela)

OPEC is a swing producer* and its decisions have had considerable influence on international oil prices. Since currently worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC’s decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC members states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power.

The API gravity for the basket is 32.7 degrees and the sulphur content is 1.77 percent (heavier than both Brent crude oil and West Texas Intermediate crude oil). A crude with more than 0.5 percent by weight of sulphur is a sour crude, with less than 0.5 percent sulphur it is said to be sweet. So the OPEC Basket is a sour crude.

One fact that significantly strengthens the OPEC’s position is the fact that among the entire world’s oil producing countries only OPEC nations have a significant spare oil production capacity. Thus they can expand oil production when demand increases.

Most of the oil futures of different blends produced by OPEC are traded at the Dubai Mercantile Exchange (DME). The DME is the premier energy-focused commodities exchange in the East of Suez. The DME was launched in June 2007 with the goal of bringing fair and transparent price discovery and efficient risk management to the East of Suez (Asia Pacific and Middle East), the world’s fatest growing commodities market and already the largest crude oil supply/demand corridor in the world. The DME is regulated by the Dubai Financial Services Authority (DFSA) and all trades executed on the exchange are cleared through and guaranteed by the New York Mercantile Exchange (NYMEX).

Dubai Crude is a light sour crude oil extracted from Dubai. It is as a price benchmark or oil marker because it is one of only a few Persian Gulf crude oils available immediately. Dubai crude is generally used for pricing Persian Gulf crude oil exports to Asia. The Dubai benchmark is also known as Fateh. It API gravity is 31 degrees and Dubai Crude has a sulfur content of 2 percent.

* Organization of the Petroleum Exporting Countries – OPEC has twelve third world member countries, six in the Middle East, four in Africa and two in South America

 * A swing producer is a supplier or a close oligopolistic group of suppliers of any commodity, controlling its global deposits and possessing large spare manufacturing capacity. A swing producer is able to increase or decrease commodity supply at minimal additional cost for himself, and thus able to influence prices and balance the markets, providing downside protection in the short to middle term. In the long term, however, the price of commodity is subject to major changes over time, particularly tied to the overall business cylce

 

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