How much does a barrel of oil cost?
What does it mean when newspapers report that oil is selling for $75 per barrel? Such numbers are often cited in discussions of energy policy, yet they fail to convey the complexity of global oil markets. Because it is impossible to synthesize the diversity of oil prices around the world, economists usually refer to benchmarks, a small number of carefully tracked prices that are considered industry standards and against which all other prices can be compared. For oil, the two most common benchmarks are Brent Crude and West Texas Intermediate. Brent Crude is oil “sourced” from the North Sea and is the benchmark against which prices are set for oil coming from Europe, Africa and the Middle East.2 West Texas Intermediate is the price used for contracts traded on the New York Mercantile Exchange and is typically the price that the media has in mind in reports about oil 3. Markets are designed to allocate efficiently resources between those who supply and those who demand a particular produ
