Along with Brent and Dubai Crude, West Texas Intermediate (WTI) crude oil is a particular grade of crude oil and one of the three major benchmarks for the oil price.
WTI is referred to as a light sweet oil because it has a low specific gravity (low density), which makes it “light,” and contains between 0.24% and 0.34% sulfur, which makes it “sweet.”
WTI, which is regarded as a high-quality and readily processed oil, serves as the basis for the oil futures contract on the New York Mercantile Exchange (NYMEX).
What is WTI?
Since WTI is generated in the United States, especially in the Permian Basin, it is the main benchmark for oil in North America. Texas is the main source of oil.
After then, it goes through pipelines to the Midwest and the Gulf of Mexico, where it is refined. Cushing, Oklahoma, serves as the primary delivery location for WTI’s physical exchange and price settlement. The Cushing hub delivery system includes 16 storage terminals and 35 pipelines (20 inbounds and 15 outbounds).13% of the oil stored in the United States is in the hub, which has a storage capacity of 90 million barrels.
The daily capacity for inbound and outbound shipping is 6.5 million barrels. “The Pipeline Crossroads of the World” refers to Cushing.
WTI As An Oil Market Benchmark
A benchmark’s significance in the oil market stems from the fact that it acts as a standard price for both buyers and sellers of crude oil. The price of oil is usually acknowledged in the media using oil benchmarks.
Despite being the most widely used benchmark, Brent oil and WTI crude prices are constantly compared. The Brent-WTI spread is the name given to the price gap between Brent and WTI. Brent, which is used as a benchmark in two-thirds of oil contracts worldwide, is the most frequently used globally rather than WTI. Both, however, are considered high-quality oils and are the two most important oil benchmarks in the world.
As previously mentioned, WTI has a sulfur level that ranges from 0.24 to 0.34%, whereas Brent has a sulfur level that ranges from 0.35 to 0.40%. Oil is more valuable and easier to refine the lower its sulfur level is. Sulfur levels under 0.5% are considered sweet. While Brent is best for diesel, WTI is best for gasoline.
Given its higher quality, WTI crude should often sell at a premium to Brent crude, but this isn’t always the case. The two types of crude oil can trade at comparable price levels, but because each has a different supply and demand market, its price reflects the specific market fundamentals for that market.
Since the U.S. shale boom, which led to an increase in WTI production, the price of WTI has decreased and typically trades at a discount to Brent. Furthermore, the cost of delivering WTI to the market for Brent crude may be too high for WTI to be able to compete with Brent crude in price.
Takeaways
- West Texas Intermediate (WTI) crude oil is a particular grade of crude oil and one of the three major benchmarks for the oil price.
- WTI serves as the basis for the oil futures contract on the New York Mercantile Exchange.
- Despite being the most widely used benchmark, Brent oil and WTI crude prices are constantly compared.
- WTI has a sulfur level that ranges from 0.24 to 0.34%, whereas Brent has a sulfur level that ranges from 0.35 to 0.40%.
