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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, 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.
Adoption of WTI futures for investment purposes
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.
Around the time that the Arab Spring (an uprising across much of the Arabic region) began in Egypt in February of 2011, the spread widened. By the middle of 2018, the WTI/Brent spread widened to more than $6 per barrel. Many analysts attributed the increase to distribution bottlenecks in the United States and competition from Canadian oil. Many energy analysts predict that oil could soon touch $100 a barrel, even as electric cars become more popular and the coronavirus pandemic persists.
Pricing premium/discount in relation to Brent
In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous. Several indicators are taken into account in the price calculation of the WTI barrel. Of course, it is mainly the law of supply and demand that influences the prices, but other fundamental factors can also have a more or less pronounced effect. WTI is the main oil benchmark for North America as it is sourced from the United States, primarily from the Permian Basin. It then travels through pipelines where it is refined in the Midwest and the Gulf of Mexico.
- As of August 31, 2021, WTI was trading at around $68.50 per barrel, while Brent traded at $72.85.
- 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.
- Brent crude’s price is the benchmark for African, European, and Middle Eastern crude oil.
- It then travels through pipelines where it is refined in the Midwest and the Gulf of Mexico.
- 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.
West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX). Oil produced from any location can be considered WTI if the oil meets the required qualifications.[2] Spot and futures prices of WTI are used as a benchmark in oil pricing.
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.
And although WTI Crude Oil and Brent Crude are two highly correlated commodities, each can respond differently to geopolitical and local economic forces. WTI and Brent are the two major types of crude oil but they have certain specific differences. For example whereas WTI is the principal crude oil traded on the American markets, Brent is the primary crude oil in the petroleum sector on the European markets. It should be noted that certain differences exist relating to the composition and concentration of these two major types of crude oil. WTI is the underlying commodity of Chicago Mercantile Exchange’s oil futures contracts (legally binding agreements to buy/sell a commodity at a specific month at a pre-determined price). Crude oil flows “inbound to Cushing from all directions and outbound through dozens of pipelines”.[16] It is in Payne County, Oklahoma, United States.
Since Brent is the pricing benchmark for Iranian crude, that development depressed the price of Brent at the time. The most heavily traded grades are Brent North Sea crude (commonly known as “Brent crude”) and West Texas Intermediate (commonly known as “WTI”). Brent is oil that is produced in the Brent oil fields and other sites in the North Sea. In 2011, amid tensions in the Middle East, fears that the Suez Canal would be closed caused Brent prices to trade at a premium to WTI.
Global adoption of WTI assessed prices as oil benchmark prices
“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 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.
West Texas Intermediate is the benchmark for the U.S. light oil market and is sourced from U.S. oil fields. Fears concerning the closure of the Suez Canal and a lack of available supply caused Brent crude oil to become more expensive than WTI. As tensions eased over the canal’s operation, the spread reduced.
Please do not hesitate to report them to us in the case whereby you find a mistake. There are three major types of crude oil throughout the world that are used as oil reference prices according to their production zones. Therefore, for European oil, Brent from the North Sea acts as the reference, whereas for the OPEC countries, it is the Dubai crude which is referred to for the price determination. Since the shale boom in the U.S., which resulted in a production increase of WTI, the price of WTI has gone down and usually trades at a discount to Brent. Brent is also tied to more worldwide oil markets and serves as an international benchmark, meaning that more factors are influencing its price.
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 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.
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 https://www.investorynews.com/ 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.
While both are considered light sweet crude, they do have different trading volumes depending on each commodity’s futures contract months. And even though both trade on U.S. exchanges and their prices are correlated, meaning they tend to move together, there are times when WTI is more https://www.forex-world.net/ expensive than Brent and vice versa. Just like there are different types of crude oil, there are also different crude oil blends, typically classified according to their capacity to be refined into gasoline. WTI and Brent crude are both classified as light and sweet crude oils.
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.