Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed these 3 5g stocks are must an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons. At some of its worst moments, the price spread between Brent and WTI reached as high as $8 per barrel. There are actually a variety of factors that we use to differentiate between them, such as the API gravity (the measurement of an oil’s density relative to water). The Saudis ditched WTI as a benchmark along with Kuwait back in 2009 for the heavier Argus Sour Crude Index (ASCI), based on the medium sour crude from the Gulf of Mexico. The problem for WTI has been the flood of oil flowing into Cushing from areas like North Dakota and Canada.
The fact that supplies are land-locked is one of the drawbacks to West Texas crude as it’s relatively expensive to ship to certain parts of the globe. The product itself is very light and very sweet, making it ideal for gasoline refining, in particular. WTI continues to be the main benchmark for oil consumed in the United States. In the United States, West Texas Intermediate is the preferred measure and pricing model. As of August 31, 2021, WTI was trading at around $68.50 per barrel, while Brent traded at $72.85. The oil is considered to be very light, with a low sulfur content – considerably lighter and sweeter than Brent Crude, Dubai, or Oman.
The EIA data is considered more reliable, since it is a government agency. For example, the price of crude oil and related refined products rose significantly at the beginning of this century due to increased demand in emerging economies. In addition, only a small amount of money was invested in exploratory activities, contributing to the poor supply.
- Additionally, their sulfur content is different, which determines if one is sweeter than the other.
- Besides its primary role as the most important energy source, crude oil is also an essential raw material for manufacturing plastics.
- The disconnect became very stark at one point – when the US had a domestic glut – now that there is a global glut, there is a convergence of the two benchmarks.
- Since Congress lifted the ban, the West Texas oil field has nearly doubled its daily production levels.
- When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices.
How does OPEC influence the price of WTI Oil?
WTI has an API gravity of about 39.6, making it quite light (having an API gravity over 10 means the petroleum is lighter and floats on water). WTI is valued as light oil, similar to Brent, but it doesn’t have the same worldwide reach. One factor contributing to this is that the United States generally forbids crude oil export (except for a few). WTI is produced in landlocked regions and must be transported to the coast, where most refineries are situated, another significant factor contributing to its low value. The standard and eventual uses of oil drilling depend heavily on the field they come from; therefore, oil is traded using benchmarks. These allow oil traders to identify the oil being exchanged immediately (and ultimately delivered).
The above chart indicates the West Texas Intermediate (WTI) crude oil futures. The chart tracks the price of a barrel of WTI crude oil over a selected period. The x-axis represents time, and the y-axis represents US dollar prices per barrel.
Oil (Brent)
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. 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. 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.
Importance of the Derivatives Market
While the two crude oil varieties can trade at similar price points, each one has its own unique supply and demand market, and therefore its price reflects distinct market fundamentals. This Middle Eastern crude is a useful reference for oil of a slightly lower grade than WTI or Brent. A “basket” product consisting of crude from Dubai, Oman, and Upper Zakum, it’s somewhat heavier and has higher sulfur content, putting it in the “sour” category. The Dubai benchmark is the main reference for Persian Gulf oil delivered to the Asian market. The price of oil is a major factor in the overall health the 5 best cryptocurrencies to invest in for 2021 of the energy sector and is one of the most heavily traded commodities as it is influenced by almost every global, macro event.
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 yndx earnings date, forecast and report Brent. Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type. The top five source countries for petroleum products imported into the U.S. are Canada, Mexico, Saudi Arabia, Iraq, and Brazil. Brent crude and WTI crude are the most popular benchmarks, but their prices are often contrasted.
Brent crude is actually a blend of oil from more than a dozen oil fields located in the North Sea. Although considered both light and sweet, Brent is slightly heavier than WTI, with an API gravity of 38.06 and a sulfur content of 0.37%. Theoretically, WTI crude should trade at a premium to Brent crude, given the quality, but this is not always the case.