WTI crude oil can be characterised by its lightness as it is in fact lighter than Brent crude oil. It contains approximately 0.24% of sulphur which means it is a ‘light’ crude oil. Its production sites and its properties therefore make it ideal for refining in the United States. It should also be noted that the API gravity of WTI (West Texas Intermediate) is around 39.6° and its specific density is 0.827. Trading tends to be particularly heavy when one of the two benchmarks undergoes unusual volatility. For example, NYMEX WTI-Brent spread options on CME Globex experienced record trading volume from 2011 to 2013 after a glut in U.S. crude sent WTI prices in a tailspin relative to Brent.
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 available on major exchanges. However, not all futures or options tied to a crude benchmark are used for hedging purposes.
WTI Light Crude Oil
For instance, it’s easier for refiners to make gasoline and diesel fuel out of low-sulfur or “sweet” crude than oil with high-sulfur concentrations. Low-density, or “light” crude is generally favorable to the high-density variety for the same reason. In December 2005 the global demand for crude oil was 83.3 million barrels per day according to the International Energy Agency (IEA) and this will continue to rise further. Theoretically, WTI crude should trade at a premium to Brent crude, given the quality, but this is not always the case.
West Texas Intermediate (WTI)
Additionally, their sulfur content is different, which determines if one is sweeter than the other. WTI has less sulfur than Brent, making it sweeter, and, therefore, easier to refine. In addition to futures, market participants can also invest in options that are linked to a particular crude benchmark.
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. 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. The less expensive it is to deliver the product, the cheaper it is for the consumer. From a transportation standpoint, oil extracted at sea has certain advantages over land-based supplies, which depend on the capacity of pipelines.
Brent Crude
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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. In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous.
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.
Asian countries tend to use a mixture of euro hungarian forint exchange rate history 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 pricing mechanism for Brent dictates the value of roughly two-thirds of the world’s crude oil production.
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, 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.
It contains less than 0.50% sulfur, whereas the norm is about 0.24% to 0.34%, making it “sweet.” It also has a low density, making it “light.” Oil refining in the U.S. typically produces up to 20 gallons of standard automobile gasoline and up to 12 gallons of diesel fuel (or “heating oil”) per barrel. Brent crude is refined all over the world by the refineries that purchase the barrels of crude oil. However, since it is drilled in Northwest Europe, most of the oil is refined nearby in that region. Fears concerning the closure of the Suez Canal and a lack of available supply caused Brent crude oil to become more expensive than WTI.
Understanding West Texas Intermediate (WTI)
- Its production sites and its properties therefore make it ideal for refining in the United States.
- The nominal price of crude oil is just one factor involved in understanding the crude oil market.
- 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.
- The NYMEX (New York Mercantile Exchange) division of the CME (Chicago Mercantile Exchange) lists futures contracts of WTI crude oil.
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.
The world crude oil market is all about investor anticipation of supply and demand, and oil prices are very volatile and highly influenced by consumer and investor sentiment. As such, global events such as the COVID-19 pandemic can send 5 best forex trading strategies in 2021 shockwaves throughout the market. As one of the world’s foremost sources of crude oil, WTI is a benchmark for the U.S. oil industry and investors. When you hear a reference to crude oil prices in a business report, it’s the price of West Texas Intermediate that is being quoted.
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. Trade-Oil.com is neither a brokerage company nor an investment consulting firm and is not intended to recommend any particular service. Therefore, it cannot be held responsible for any litigation or financial loss following the use of one of these contents.
The impact to supply due to the use of AI could end up outweighing any rise in demand corporate bond yield curve papers and data from AI’s power needs, Goldman Sachs analysts say. Both Brent Crude and WTI are light and sweet, making them ideal for refining into gasoline.