Two of the most commonly traded types of crude oil are WTI and Brent. It is worth understanding what the top differences between WTI and Brent Crude are, so as to make informed trading decisions：
- 1、Extraction Location
- 2、Geopolitical
- 3、Content and composition
- 4、Where Brent and WTI are traded
- 5、Prices and benchmark
1、EXTRACTION LOCATION：
Western Texas Intermediate (WTI)
WTI is extracted from oil fields in the United States. It is primarily extracted in Texas, Louisiana and North Dakota and is then transported via pipeline to Cushing, Oklahoma for delivery.
Technological developments in the early 2000s made it possible to extract oil from shale rock, a process that was thought to be impossible at the time. This was dubbed the Shale Revolution and led to vastly more amounts of oil being produced by the USA.
Brent crude is extracted from oil fields in the North Sea. ‘Brent Crude’ refers to a blend of four crude oils – Brent, Forties, Osberg, and Ekofisk which together are known as BFOE.
2、GEOPOLITICAL DIFFERENCE BETWEEN WTI AND BRENT
Geopolitical influences – such as volatile political systems of oil producing countries, and OPEC’s rising and falling oil production levels – can have a big impact on oil price. Traders should know how these vary for WTI and Brent.
For a bit of background, many of the world’s leading oil producing nations outside of the US rely on crude oil to balance their fiscal budget. Historically their political systems have been quite volatile, which has led to price spikes in oil – particularly Brent crude – when oil production comes into doubt.
Many of these nations are members of the Organization of the Petroleum Exporting Countries (OPEC). Key members include Saudi Arabia, Iran, Iraq, Venezuela and Nigeria, and a significant part of their national income is derived from crude oil. OPEC claims to try and ensure price stability of oil through increasing or decreasing oil production by its member countries.
When it comes to trading oil, Brent oil traders should be on the watch for tensions rising in the Middle-East, which is one of the biggest global producers of crude oil. Geopolitical tension can cause the market to speculate on an immediate or developing lack of oil supply, leading to sharp movements in the price. The map below shows just how much oil is produced in the Middle-East.
WTI oil traders, similarily, will be monitoring the supply and demand factors in the U.S. Disruptions to either Brent crude or WTI crude could cause the WTI-Brent spread to change causing one of the markets to move more aggressively relative to the other.
3、CONTENT AND COMPOSITION OF WTI AND BRENT
Brent and WTI have very different sulfur content and API gravity, which can directly affect the price of the oils.
While WTI has a sulfur content of 0.24%, Brent has a sulfur content of 0.37%. The lower the sulfur content of the oils the ‘sweeter’ the oil and the easier it is to refine. Both WTI and Brent are considered sweet crude.
The gravity of the oils is rated on a scale from 10 to 70, where the higher the number the less dense the oil. To put this in perspective, if the API is higher than 10 the oil will float on water and if it is lower than 10 the oil will sink. Both Brent and Crude are relatively light oils.
Traders will want to keep an eye on supply and demand changes. For example, the IMO 2020 act may increase the demand for light sweet crude and therefore increase the demand for WTI and Brent.
4、WHERE THE OILS ARE TRADED
There are a variety of platforms where the oils are traded depending upon your country of residence. One of the main ways to trade crude oilis through a futures contract, however there are differences for WTI and Brent.
WTI futures contracts are traded on the New York Mercantile Exchange (NYMEX), which is owned by the Chicago Mercantile Group (CME). WTI futures contracts are deliverable in Cushing, Oklahoma. Cushing is a transshipment point with intersecting pipelines and storage facilities that has easy access to refiners and suppliers.
Brent futures contracts are traded on the Intercontinental Exchange (ICE) in London.
The specifications for WTI and Brent futures are as follows:
5、WTI AND BRENT PRICES AND BENCHMARK
In the past, WTI traded at a premium to Brent. However due to the Shale Revolution in the early 2000s (in which WTI production increased) and more imports to the US from Canada, the price of WTI declined. It now usually trades at a discount to Brent.
Today WTI is the benchmark for oil prices in the US, while the rest of the world – and nearly two-thirds of all oil contracts traded – are on Brent. This makes Brent the global Benchmark.
The price difference between WTI and Brent is known as the WTI vs Brent Spread. The spread will change from time to time, as the supply and demand forces of each crude oil are elastic due to geopolitics, weather, and regulation.
The chart below shows the price difference between WTI and Brent