Brent Crude is the benchmark used for the light oil market in Europe, Africa, and the Middle East, originating from oil fields in the North Sea between the Shetland Islands and Norway. West Texas Intermediate is the benchmark for the U.S. light oil market and is sourced from U.S. oil fields. WTI is the underlying commodity of the New York Mercantile Exchange’s (NYMEX) oil futures contract. With expanding support for exporting U.S. crude abroad, that meant less drilling in the future and less U.S. production on a daily basis.
The sulfur content of both Brent and WTI is well under 1%, making them both “sweet.” These types are also less dense (“lighter”) than many of the crude oils extracted elsewhere. Both of these characteristics make them easier to refine and more attractive to petroleum product producers. West Texas Intermediate (WTI) is a trading classification of crude oil and one of the most commonly used benchmarks in oil prices.
What Is the Difference Between Brent and WTI?
Please do not hesitate to report them to us in the case whereby you find a mistake. Investors can also gamble on what will happen to the difference, or spread, between two benchmarks. Participants typically analyze the fundamentals of a specific oil source and guess whether the gap between two markers will widen or close. Like traditional oil options, these “spread options” are finding opportunities with the 50 and 200 period moving averages available on major exchanges. However, not all futures or options tied to a crude benchmark are used for hedging purposes.
Understanding West Texas Intermediate (WTI)
As for the WTI crude oil, it is quoted in almost all economic announcements from this sector in the United States and North America. Both benchmark oils are considered sweet, but WTI is sweeter, making it a bit easier to refine. The hub has 90 million barrels of storage capacity and accounts for 13% of U.S. oil storage. Because of the coronavirus outbreak, the International Energy Agency (IEA) cut its forecast for global oil demand in March 2020, predicting the first year-over-year decline in demand since 2009. Until a few years ago, the price per barrel of WTI oil was systematically quoted at 1 U.S. Dollar more than that of Brent oil which is heavier and therefore less easy to refine.
There was once a time when buyers would primarily purchase crude oil on the spot market—that is, they’d pay the current price and accept delivery within a few weeks. However, after the oil crisis of the late 1970s, refiners and government buyers began looking for a way to minimize the risk of sudden price increases. The Organization of the Petroleum Exporting Countries (OPEC) controls most of the oil production and distribution, often dictating costs for not only oil suppliers but countries as well. Most nations factor oil prices into their budgets, so OPEC has been considered a leading geopolitical force. Since both types of oil are used as benchmarks, different countries will use them in different manners.
Today, much of the global trading takes place on the futures market, with each contract tied to a certain category of oil. Open a newspaper and there’s a good chance you’ll find a news story about the price of oil going in one direction or the other. As such, there are a few different classifications of crude oil, each that serves as a different financial benchmark for the substance. A benchmark in the oil market serves as a reference price for buyers and sellers of crude oil. Oil benchmarks are frequently referred to in the media as the price of oil. Brent crude is Companies like tesla to invest in traded internationally, so the delivery locations will vary by country.
About WTI Light Crude Oil
It originates mainly in the Permian Basin, the site of the nation’s highest-producing oil field. The oil travels via pipeline from Texas to refineries in the Midwest and the Gulf of Mexico. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. West Texas Intermediate plays an important role in managing risk in the energy sector worldwide as it has high liquidity, a large number of customers, and a lot of transparency.
An oil price shock has the potential to spark a recession or a 1970s-style stagflationary crisis, Roubini has warned. Furthermore, transporting WTI overseas to Brent crude’s market can be costly, live cryptocurrency prices and rates making it difficult for WTI to compete with Brent crude in terms of pricing. WTI is the main oil benchmark for North America, as it is sourced from the United States.
- The most heavily traded grades are Brent North Sea crude (commonly known as “Brent crude”) and West Texas Intermediate (commonly known as “WTI”).
- In fact, the majority of the financial derived products available through online European and international brokers offer contracts based on both Brent and WTI crude oil.
- For the purposes of trading on futures exchanges in London or New York, however, reference oils are used.
- These are standardised products used to determine the prices for all other types.
There has been a trend, due to advancements in oil drilling and fracking, of West Texas Intermediate becoming cheaper than Brent Crude oil. This has been dubbed the American shale revolution, and the increased production led oil prices to fall from above $100 to below $50 from 2014 to 2015. Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type. Crude oil is a mixture of hydrocarbons found in liquid form underground and brought to the surface for refining into fuel and other products. Petroleum products are processed in refineries from crude oil and other liquids. Petroleum is a broad term that includes both crude oil and petroleum products.
How much gasoline is produced by one barrel of crude oil?
Another factor that can lead to significant differences between Brent Crude and West Texas Intermediate is geopolitical trouble. During times of crisis, the spread blows out as political uncertainty leads to surges in Brent Crude prices. West Texas Intermediate is less affected because it is based in landlocked areas in the United States.
The US investment bank Goldman Sachs estimates the proportion of crude oil used for primary materials production to be 45 per cent. The commodity of crude oil is by far the world’s most important energy source and the price of oil therefore plays an important role in industrial and economic development. The most important type of crude oil used in Europe is Brent Crude, named after the North Sea oilfield where it is extracted. Brent Crude is a particularly light crude oil which is carried from the North Sea to the Sullom Voe Terminal on Mainland, Shetland by an underwater pipeline.
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In 2023, the U.S. imported about 8.51 million barrels per day of petroleum products from 86 countries. The same year, it exported about 10.15 million barrels of petroleum to 173 countries and three U.S. territories. WTI and Brent, however, are both considered high-quality oils and therefore are the two most important oil benchmarks in the world.
This grade is described as light crude oil because of its low density and sweet because of its low sulfur content. ] local trade between oilfield production and refineries around Midland, Texas, and Cushing, Oklahoma, could be said[by whom? On an international level there are a number of different types of crude oil, each of which have different properties and prices.
It is often priced one dollar more than the Brent and two dollars more than the Dubai. However, sometimes the WTI barrel is less expensive than the Brent barrel, but this difference has never historically exceeded 27 dollars. Brent is the reference for about 80% of the oil traded around the world, with WTI the dominant benchmark in the U.S. and Dubai influential in the Asian market.