Ah yes. Like the hugely unstable British Empire, and the flash-in-the-pan Roman Empire.

Most physical deals would be struck at a fixed basis spread over the futures month. For example, $1 + LCOc1 CIF ARA, to mean $1 over the nearest Brent futures month cost of insurance and freight to Amsterdam, Rotterdam, Antworp, for example, for a physical destination.

Therefore, the basis spread remains unchanged during the length of the contract, but the final price changes with the futures price. Then both producer and end user can hedge themselves against flat price risk by buying to selling futures.

Any over or under delivery on the physical contract within tolerances is then also accomplished by swapping an equivalent number of futures contracts. For example if the tolerance is +/- 1% that is still a large cash amount if the contract is big.

In this sense the grade of the underlying contract whether sweet & light or heavy & sour does not matter ‘a great’ deal because that grade discount or premium is reflected in the basis spread not in the futures contract.

Of course, a contract for ME crude supplied to an Asian buyer could be adversely affected by a short squeeze in NY Harbor delivery, but that price risk by basing the contract on the wrong underlying future contract is avoidable.

Where it might skew calculations of the value of imports and export receipts is if one took the headline price for a benchmark light & sweet grade like WTI and then multiplied global supply and world wide demand by that headline price. That would overstate the true size of the crude oil market versus using lower quality blends.

If West Texas Intermediate and Brent are lighter, sweeter crudes than the majority of crude actually traded, and if grade has a significant impact on price, that is reason to believe that these benchmarks might depart significantly from the real volume-weighted mean price of the world’s crude. But by how much, and what the dispersion is - anybody? Anybody at all?

I should note that we did all the calculations in terms of the price of sweet light - not national crude. but given how we did the calcultions, we effectively adjusted production downward to reflect countries that don’t produce just sweet light. so it should work out — and it makes comparison easier.

” History tells us that one of the most unstable political combinations is a country - like the United States today - that tries to be a domestic democracy and a foreign imperialist.

These operations have included the clandestine overthrow of governments various US administrations did not like, the training of foreign militaries in the techniques of state terrorism, the rigging of elections in foreign countries, and interference with the economic viability of countries that seemed to threaten the interests of influential US corporations, as well as the torture or assassination of selected foreigners.

Whatever future developments may prove to be, my best guess is that the US will continue to maintain a facade of constitutional government and drift along until financial bankruptcy overtakes it.

Certainly, such a bankruptcy would mean a drastic lowering of Americans’ standard of living, a further loss of control over international affairs, a sudden need to adjust to the rise of other powers, including China and India, and a further discrediting of the notion that the United States is somehow exceptional compared with other nations. We will have to learn what it means to be a far poorer country - and the attitudes and manners that go with it. ”

- Chalmers Johnson
Japan Policy Reseach Institute