Understanding the Crude Oil Market

Crude oil that is lighter in density is easier to refine into gasoline, while oil with a heavier density is more difficult to refine. West Texas Intermediate (WTI) crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. WTI is known as a light sweet oil because it contains less than 0.50% sulfur (normally about 0.24% to 0.34%), making it “sweet,” and has a low density making it “light.”

Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Both Brent Crude and WTI are light and sweet, making them ideal for refining into gasoline. Trade-Oil.com is neither a brokerage https://www.forexbox.info/ 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. It is possible to consult the WTI historical prices on the Energy Information Administration website of the department of energy.

1. The increased oil exports decreased U.S. oil production and supply, pushing WTI prices higher relative to Brent, but the conversion was short-lived.
2. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator.
3. Brent Crude is often considered the global benchmark for oil because roughly two-thirds of the world’s oil is priced off Brent Crude futures.
4. The nominal price of crude oil is just one factor involved in understanding the crude oil market.
5. This has been dubbed the American shale revolution, and the increased production led oil prices to fall from above $100 to below $50 from 2014 to 2015.

To understand how world events can cause the spread between Brent and WTI to move dramatically for long periods, look back a few years. All expressions of opinion are subject to change without notice in reaction https://www.dowjonesanalysis.com/ to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Brent crude oil futures trade on the Intercontinental Exchange (ICE). Brent crude is traded internationally, so the delivery locations will vary by country. The NYMEX (New York Mercantile Exchange) division of the CME (Chicago Mercantile Exchange) lists futures contracts of WTI crude oil. The https://www.forex-world.net/ 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. Most nations factor oil prices into their budgets, so OPEC has been considered a leading geopolitical force.

Brent Crude

In 2015, the WTI/Brent spread dropped because of events in the United States and the Middle East. Iran, whose oil is benchmarked to Brent crude, agreed to increase flows into the market. At the same time, U.S. rig counts declined, while WTI export activity increased. The increased oil exports decreased U.S. oil production and supply, pushing WTI prices higher relative to Brent, but the conversion was short-lived. 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.

It contains approximately 0.24% of sulphur which means it is a ‘light’ crude oil. The extraction of WTI crude oil is completed exclusively in North America. Its production sites and its properties therefore make it ideal for refining in the United States. This refinery is mostly completed in the Midwest and the Gulf Coast areas. 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. First, an agreement with Iran was struck, allowing the country to export more oil, which should have increased the amount of Iranian crude flowing into the market on a daily basis.

Exxon Mobil and other oil companies that only a year ago were considered endangered dinosaurs by some Wall Street analysts are thriving, raking in their biggest profits in years. As for the WTI crude oil, it is quoted in almost all economic announcements from this sector in the United States and North America. If you look at the disconnect between the two benchmarks now, and it has narrowed to about $3 – the market has levelled out. 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. Light Sweet Crude Oil futures and options, in particular West Texas Intermediate futures, are the most actively traded energy product in the world. The Cushing hub delivery system consists of 35 (20 inbound and 15 outbound) pipelines and 16 storage terminals.

Factors That Affect Benchmark Pricing

It is actually a type of crude oil used by the economists as a standard value to determine the crude oil price as a commodity on the exchange markets, within the framework of futures contracts. This quotation is priced on the New York Mercantile Exchange, which is the principal world commodities exchange. 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 shockwaves throughout the market.

The spread widened even more after Iran threatened to close the Strait of Hormuz, a shipping route through which 20% of the world’s oil was transported at that time. Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type. But all geopolitical current events in connection with oil production also influence the WTI prices.

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This has been dubbed the American shale revolution, and the increased production led oil prices to fall from above $100 to below $50 from 2014 to 2015. 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. 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.

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. West Texas Intermediate (WTI) is a trading classification of crude oil and one of the most commonly used benchmarks in oil prices. Theoretically, WTI crude should trade at a premium to Brent crude, given the quality, but this is not always the case. 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 its individual market fundamentals.

The main delivery point for physical exchange and price settlement for WTI is Cushing, Oklahoma. 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. The IEA predicted in its February 2021 report that demand would recover 60% of its 2020 losses over the course of the year.

In fact, the majority of the financial derived products available through online European and international brokers offer contracts based on both Brent and WTI crude oil. You therefore have the choice as to which type of crude oil you wish to speculate on. The oil is considered to be very light, with a low sulfur content – considerably lighter and sweeter than Brent Crude, Dubai, or Oman. West Texas Light Sweet Crude oil contracts deliver in Cushing, Oklahoma.