Benchmark

A benchmark is a widely quoted reference price for a commodity, tied to a specific grade and location, that other transactions are priced against.

Commodities are not uniform, so markets agree on a few reference prices and quote everything else as a spread against them. Brent and WTI serve this role for crude oil; Henry Hub, TTF, and JKM for natural gas in North America, Europe, and Northeast Asia; the Chicago contracts for grains; the London Metal Exchange for base metals. Long-term contracts for iron ore or LNG often set their price as a formula linked to a benchmark.

A benchmark works only if it is liquid, transparent, and hard to manipulate. Its grade must be common enough that many sellers can deliver it, and its location must have enough storage and shipping to absorb trades. When a benchmark’s physical base shrinks, as North Sea Brent output has, the price assessor widens the basket of deliverable grades to keep it representative.

Most quoted prices on this site are benchmarks, so the same commodity can show different prices depending on the reference. See benchmarks explained.