Furthermore, transporting WTI overseas to Brent crude’s market could come at a cost that would make WTI unable to compete with Brent crude in terms of pricing. WTI is the underlying commodity of the New York Mercantile Exchange’s (NYMEX) oil futures contract and is considered a high-quality oil that is easily refined. The nominal price of crude oil is just one factor involved in understanding the crude oil market. Since both types of oil are used as benchmarks, different countries will use them in different manners. Asian countries tend to use a mixture of Brent and WTI benchmark prices to value their crude oil. Brent crude’s price is the benchmark for African, European, and Middle Eastern crude oil.
The standard oil density measurement is based on American Petroleum Institute (API) gravity. With numbers falling between 10 and 70, the lighter the oil, the higher the API gravity number. For example, oils in the high API gravity range—light oils—often are light enough to float on water and are easier to refine. Heavy oils in the lower range of API gravity scores will sink in water. Brent Crude is more ubiquitous, and most oil is priced using Brent Crude as the benchmark, akin to two-thirds of all oil pricing. Brent Crude is produced near the sea, so transportation costs are significantly lower.
HOUSTON — Oil prices are increasing, again, casting a shadow over the economy, driving up inflation and eroding consumer confidence. Most of the time, the WTI is refined directly in the United States, mainly in the Midwest and near the Gulf Coast for practical reasons as the production sites are nearby. 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. WTI only contains 0.24% sulfur and has an API gravity of approximately 39.6. The oil is primarily refined in the Gulf Coast and Midwest areas of the United States.
How much gasoline is produced by one barrel of crude oil?
“Spot price” is another way of referring to the market price for a commodity, so the Cushing spot price is the price at which you can buy or sell a barrel of oil that delivers in Cushing. In 2005, hurricanes https://www.investorynews.com/ led to sharp rises in oil prices, as refineries and production facilities shut down for the duration of the weather events. When it comes to pricing, oil quality isn’t the only consideration.
Location, delivery logistics, and global supply and demand also play a part in oil trading. The price of oil is a major factor in the overall health of the energy sector and is one of the most heavily traded commodities as it is influenced by almost every global, macro event. In the United States, West Texas Intermediate https://www.dowjonesanalysis.com/ is the preferred measure and pricing model. West Texas Intermediate (WTI) is slightly lower in price than Brent. As of August 31, 2021, WTI was trading at around $68.50 per barrel, while Brent traded at $72.85. WTI crude oil can be characterised by its lightness as it is in fact lighter than Brent crude oil.
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- Both Brent Crude and WTI are light and sweet, making them ideal for refining into gasoline.
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- Theoretically, WTI crude should trade at a premium to Brent crude, given the quality, but this is not always the case.
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Brent Crude
The price of WTI is quoted on the NYMEX, or New York Mercantile Exchange, which is the American market where all the commodities are quoted. 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.
A surge of WTI production has led many traders to consider it an important pricing benchmark vs. Brent, if not even close to the total production of the latter. At the end of 2010 the price difference between the two benchmarks widened, and then narrowed at the end of 2013. Then, in late 2011, the Iranian government threatened to close the Straits of Hormuz, through which approximately 20% of the world’s oil flows. Once again, the spread widened, as Brent soared to a $25 premium per barrel higher than WTI. The spread widened during 2011, with Brent trading at a premium compared to WTI.
ICE Brent Crude is a specific futures contract offered by Intercontinental Exchange (ICE). It is traded in U.S. dollars, and it trades on exchanges in New York, London, and Singapore. The significance of a benchmark in the oil market is that benchmarks serve as a reference price for buyers and sellers of crude oil. Oil benchmarks are frequently quoted in the media as the price of oil. Though Brent crude and WTI crude are the most popular benchmarks, their prices are often contrasted.
While demand did rise again, more Covid lockdowns in China and a supply disruption caused by Russia’s war with Ukraine led the IEA to predict slightly slowed demand and higher prices as of May 2022. 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.
WTI crude oil as a trade grade
The pricing mechanism for Brent dictates the value of roughly two-thirds of the world’s crude oil production. In early 2020, the killing of a top Iranian commander gave rise to Middle East tensions. Crude oil prices did drop after this event, but the price drop may also have been caused by the oil price war between Russia and Saudi Arabia. This could’ve been a short-term move had it not been for worries about oil inventories during the coronavirus pandemic, which took crude prices much lower. Crude oil prices recovered after April 2020 and, with the exception of the April low, the WTI/Brent spread has remained relatively narrow. It is of course possible to invest in WTI crude oil from just about anywhere around the world.
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. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, https://www.topforexnews.org/ and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone.
Both benchmark oils are considered sweet, but WTI is sweeter making it a bit easier to refine. 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. Crude oil is a major factor in markets and industries worldwide, so financial news outlets and traders across the globe closely monitor the rise and fall of crude oil futures.
More technically, WTI oil has an API density of 39.6 and a specific density of around 0.827. WTI is not the most commonly used benchmark globally, that honor goes to Brent, where two-thirds of oil contracts globally use Brent as a benchmark. Both, however, are considered high-quality oils and are therefore the two most important oil benchmarks in the world. As mentioned, WTI has a sulfur content between 0.24% and 0.34%, whereas Brent has a sulfur content between 0.35% to 0.40%. The lower the sulfur content of an oil, the easier it is to refine, making it more attractive.