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The benchmark for determining global crude oil prices is changing

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Storage tanks that are part of a system for holding waste water and crude oil are seen in Midland, Texas.

West Texas Intermediate crude oil has the qualities needed for an update of the Brent index. Above, storage tanks in Midland, Texas. Joe Raedle/Getty Images

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When people talk about the global price of oil, they usually refer to the Dated Brent benchmark. Sometimes, it’s simply called Brent crude in news reports.

By some estimates, Dated Brent is used to set the price of two-thirds of the crude oil sold around the world. But the way that benchmark price is determined is about to change, with U.S. oil playing a larger role.

The Brent benchmark was named after the Brent oil field in the North Sea between Scotland and Norway. But that deposit is running dry as all oil fields eventually do, said Rory Johnston, founder of Commodity Context, an oil and natural gas research service.

“It’s just a normal part of the industry,” he said.

Other grades of oil from the same region have been added over the years. Collectively, those grades are known as the BFOET, “which stands for Brent, Forties, Oseberg, Ekofisk and Troll,” Johnston said.

Admittedly, it sounds like a bunch of “Harry Potter” characters. But now, the fields where those grades of oil are drilled aren’t producing as much as before either, according to Tracy Shuchart, CEO and founder of Hilltower Resource Advisors.

“There’s not a lot of expansion there. They’re getting older,” she said.

So, S&P Global Commodity Insights, which publishes the Brent index, started looking for another grade of crude oil because the more volume available, the more accurate the price.

“They could have added another big Norwegian oil field, but the oil from there didn’t fit the profile,” Shuchart said.

The profile was pretty specific because grades of oil span a wide range.

“Some oil flows like molasses, and some flows very well,” said David Garza, managing director of Gunvor USA.

Oil that’s not too thick, not too thin and without too much sulfur. That’s what they’re looking for.

Garza said West Texas Intermediate Midland crude oil (not to be confused with West Texas Intermediate Cushing, the U.S. benchmark) fit the bill and is set to be included in the Brent benchmark.

That’s a big deal for the U.S., which is now the world’s largest oil producer, said Euan Craik, president of oil market services at Argus Media.

“I think what it really underlines is the rise of the U.S. as an oil-exporting power,” he said.

Keep in mind that up until 2015, the U.S. had a ban on exporting domestic oil. A lot has changed in just eight years.

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