WTI is a specific grade of crude oil and is one of three major oil benchmarks used by those trading oil contracts, futures, and derivatives.
WTI stands for West Texas Intermediate and is also called Texas Light Sweet.
It is one of the three major oil benchmarks used in trading, the others being Brent Crude and Dubai/Oman.
As you can see, the “price of oil” is misleading since there is no single price for oil. Each benchmark has its own “price”.
This means that are multiple prices of oil so if you want to know the “price of oil”, you have to specify which benchmark.
West Texas Intermediate (WTI) is usually slightly lower in price than Brent
It is also considered slightly “sweeter” and “lighter” than Brent.
This is because WTI contains 0.24% sulfur, making it “sweet,” and has a low density, making it “light.”
In the United States, West Texas Intermediate is the preferred measure and pricing model.
West Texas Intermediate is sourced from U.S. oil fields, primarily in Texas, Louisiana, and North Dakota.
WTI is the underlying commodity for the NYMEX’s oil futures contract.
“Light and Sweet” versus “Heavy and Sour” Oil
There are many different types of crude oil and crude oil blends in the world, and they’re typically classified according to their capacity to be refined into gasoline.
Light vs. Heavy
Crude oil that is lighter in density is easier to refine into gasoline. In contrast, oils with heavier densities are more difficult to refine.
API gravity is a standard measurement to classify oil density that was developed by the American Petroleum Institute.
With numbers falling between 10 and 70, the lighter the oil, the higher the API gravity number.
For example, oils in the high API gravity range—light oils—will often float on water; correspondingly, these oils are easier to refine.
Heavy oils in the lower range of API gravity scores will begin sinking in water.
Sweet vs. Sour
How “sweet” a crude oil is has everything to do with its sulfur content.
Sulfur content higher than 0.5% is considered sour; lower than 0.5% is considered sweet.
The sweeter the oil, the easier it is to refine into gasoline and other petroleum-based products.
Crude oil that is both light and sweet is easier to refine. And these two qualities make up the benchmark for premium oils.
WTI and Brent crude, both recognized as light and sweet, as viewed as the premium benchmarks in the global crude oil market.
WTI vs. Brent Crude Oil
Oil Density
- WTI has an API gravity of 39.6°, making it very “light.”
- Brent has an API gravity of 38°, still light, but not as light as WTI.
Sweetness
- WTI has a sulfur content of 0.24%, making it very “sweet.”
- Brent has a sulfur content of 0.40%, which is under the 0.50% benchmark, but not as sweet as WTI.
Extraction Locations
- WTI is extracted from the United States, in oil fields located in Texas, North Dakota, and Louisiana.
- Brent is extracted from the North Sea near Europe, in oil fields located in Brent, Ekofisk, the Forties, and Oseberg.
Transport Difficulty
- WTI is landlocked, making it more difficult to transport.
- Brent is extracted at sea, making it easier to transport.
Exchanges
Futures on these major crude oil benchmarks are listed on U.S. and European exchanges.
- The most widely traded WTI crude oil contracts (/CL) are traded on the NYMEX, one of four exchanges owned by CME Group.
- Brent crude oil contracts trade primarily on the Intercontinental Exchange (ICE), but CME Group also lists a Brent contract (/BZ), although volume in the CME contract is much lower.
Prices
- The prices of both WTI and Brent are highly correlated. Although each has a different price, they both fluctuate together, diverging and converging within a relatively tight range.
- WTI crude is lighter and sweeter than Brent, and it’s had a historical premium over Brent of around $2.50 to $4. But this hasn’t always been the case. And for the last several years, Brent has commanded a premium.
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