Grade / Quality Spec
The standardized quality specifications a commodity must meet to be deliverable against a futures contract — API gravity and sulphur content for crude oil, purity for metals.
Commodity futures contracts specify accepted delivery grades — the minimum quality standards a deliverable lot must meet. This standardization is what makes futures contracts fungible and hedgeable.
For WTI crude: API gravity between 37° and 42°, sulphur content ≤0.42%. Crude failing these specs trades at a discount to the benchmark. For COMEX gold: minimum purity of 99.5% in approved bar sizes from approved refiners.
Grade premiums and discounts reflect real physical market dynamics. Producers of premium-quality crude (low sulphur, light gravity) sell at a premium to WTI; heavy sour crude (Venezuelan, Canadian oil sands) trades at steep discounts.
Related Terms
Benchmark Price
A widely accepted reference price for a commodity that other grades, contracts, or products are priced against — WTI, Brent, Henry Hub, and COMEX gold are key examples.
BeginnerBrent Crude
The global benchmark crude oil grade produced from the North Sea, priced in $/barrel and the reference for roughly two-thirds of the world's oil trade.
BeginnerCommodity
A raw material or primary agricultural product that is interchangeable with others of the same grade and traded on organized exchanges.
BeginnerPhysical Delivery
Settlement method where the seller of a futures contract must deliver the actual underlying commodity to the buyer at expiration.
IntermediateWTI Crude
West Texas Intermediate crude oil — the US benchmark grade traded on NYMEX, priced in $/barrel and settled at Cushing, Oklahoma.
Beginner