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 web, apps and software development blog investor sentiment. As such, global events such as the COVID-19 pandemic can send 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.
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.
About WTI Light Crude Oil
Besides its primary role as the most important energy source, crude oil is also an essential raw material for manufacturing plastics. Because the supply of crude oil is limited but demand is constantly increasing, the price of oil is also continuously rising. Because crude oil is needed to manufacture other primary materials, it is the world’s most important commodity.
The market for crude is incredibly diverse, with the quality and original location of the oil making a major impact on price. Because they’re relatively stable, most crude oil prices worldwide are pegged to the Brent, WTI, or Dubai benchmarks. Crude oil flows « inbound to Cushing from all directions and outbound through dozens of pipelines ».[16] It is in Payne County, Oklahoma, United States. 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. 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).
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.
Pricing premium/discount in relation to Brent
When trading online, investors often have the choice between different asset types according to the production zone of this commodity. The most available oil on the markets is called WTI which stands for ‘West Texas Intermediate’. In order to best anticipate the movements and evolution of its prices through CFDs, it is therefore necessary to know their specificities and main characteristics.
One of the characteristics of the WTI crude oil is that it is much lighter than Brent. It is also called Texas Light Sweet because of its low sulfur content (0.24%), which makes of it a sweet crude oil. More technically, WTI oil has an API density of 39.6 and a specific density of around 0.827. There are different types of crude oil—the thick, unprocessed liquid that drillers extract below the earth—and some are more desirable than others.
The impact to supply due to the use of AI could end up outweighing any rise in demand from AI’s power needs, Goldman Sachs analysts say. Both Brent Crude and WTI are light and sweet, making them ideal for refining into 11 best online brokers for stock trading of march 2021 gasoline.
Adoption of WTI futures for investment purposes
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 pricing mechanism for Brent dictates the value of roughly two-thirds of the world’s crude oil production.
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.
- 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.
- The oil is considered to be very light, with a low sulfur content – considerably lighter and sweeter than Brent Crude, Dubai, or Oman.
- This Middle Eastern crude is a useful reference for oil of a slightly lower grade than WTI or Brent.
- West Texas Intermediate, more generally represented by the initials WTI, is also sometimes called Texas Light Sweet by certain brokers.
- 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.
Factors That Affect Benchmark Pricing
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.
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 how to use trendlines in your trading sea, so transportation costs are significantly lower. In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous.
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.
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.
Political shifts, weather events, and global health crises have been some of the biggest shock factors in the oil market. 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. Because of the dynamic nature of supply and demand, the value of each benchmark is continually changing. Over the long term, a marker that sold at a premium to another index may suddenly become available at a discount. Offshore oil rigs, despite being in the news more often, most famously with the BP oil leak of 2010, are heavily traded as barometers of domestic oil market health.