West Texas Intermediate WTI: Definition and Use As a Benchmark

From time to time new oil resources come online — like Canadian oil sands or US crude oil from oil shale — these add to the global supply. New sources can exert a downward force on oil prices, even in times of heavy demand. However, the global pool of oil and the ease with which oil moves around the world levels some of these price pressures, and no one oil producer to completely dominate the world market. The 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. Crude oil flows “inbound to Cushing from all directions and outbound through dozens of pipelines”.12 It is in Payne County, Oklahoma, United States.

When the price breaks above a resistance level, traders may enter a long trade, anticipating a continuation of the upward trend. When the price approaches the lower Bollinger Band or a support level, traders may long, anticipating a rebound to the upper Bollinger Band or resistance level. Conversely, traders may short when the price approaches the upper Bollinger Band or resistance level, expecting a decline to the lower Bollinger Band or support level. The hub has 90 million barrels of storage capacity and accounts for 13% of U.S. oil storage.

The Cushing, OK delivery point was based on the Cushing Oil Field, discovered in 1912 and once a staple of American oil production. Today, the town is tiny, but is home to a vast interconnection of pipeline and storage for crude oil. Platts and Argus Media both report on physical product costs in this market, informing speculators on costs. 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). 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. The current price of West Texas Intermediate (WTI) crude oil today is $63.40 per barrel.

• The term “Brent” has since been adopted as a benchmark for crude oil pricing, representing the oil produced in this area.
• If you live in Texas, it makes sense that the West Texas benchmark would be a good indicator for fuel prices.
• Its price is closely watched by investors, traders, and consumers worldwide.
• It is sourced from the United States, primarily in Texas, Louisiana, and North Dakota.
• One factor contributing to this is that the United States generally forbids crude oil export (except for a few).

What are WTI and Brent oil futures?

This includes news about production cuts, increased demand, geopolitical tensions in oil-producing regions, and economic data releases. It is often juxtaposed with Brent Crude, another major benchmark in oil pricing. West Texas Intermediate (WTI) is a trading classification of crude oil and one of the most commonly used benchmarks in oil prices.

Political instability, conflicts, or sanctions in the region can disrupt crude oil production and supply, leading to price spikes. Trades on the NYMEX are typically sold in 1,000 barrel increments (42,000 gallons). Many oil producers also use the NYMEX as a hedging tool to lock in their profits for upcoming years. WTI is one of the most referenced benchmarks used in oil news reports on oil prices, along with the Brent price – which comes from the North Sea. Futures on these major crude oil benchmarks are listed on U.S. and European exchanges.

She lives on the west coast of Canada, and spends a lot of time walking around looking at trees. A sector once viewed as a classic Trump trade has been left behind by investors this year, but there are several reasons it could soon rally, BofA said. Most WTI production occurs in Texas, particularly in regions like the Permian Basin, but it is also extracted from states such as North Dakota and New Mexico. The oil is transported via pipelines to various refineries across the U.S. Traders often use correlation analysis to identify pairs of assets that have a historical relationship. In the case of WTI, potential pairs could include other energy commodities like natural gas or heating oil.

Hence, traders should always conduct thorough research, practice proper risk management, and consider consulting with a financial advisor if they’re new to trading or need limefx personalized guidance. However, waiting for a pullback or retracement before entering the trade is important to reduce risk. Similarly, traders may short the trade when the price breaks below a support level, expecting a downward trend. Range trading involves identifying a price range within which the market is expected to trade. Traders can use technical indicators like Bollinger Bands or support and resistance levels to identify price ranges. Bollinger Bands plots a moving average and two standard deviations above and below it, creating a channel within which the price is expected to trade.

Additionally, for businesses engaged in oil production, refining, distribution, or retail, WTI price changes can have profound implications on their operations. West Texas Intermediate is a high-quality crude oil sourced in West Texas. As one of the world’s foremost sources of crude oil, WTI is a benchmark for the U.S. oil industry and investors.

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. West Texas Intermediate is the benchmark for the U.S. light oil market and is sourced from U.S. oil fields. Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type. This pricing difference is due to geographical and logistical factors, including transportation costs and the proximity of production to consumption centers. Crude oil is a mixture of hydrocarbons found in liquid form underground and brought to the surface for refining into fuel and other products.

Pricing premium/discount in relation to Brent

Both benchmark oils are considered sweet, but WTI is sweeter, making it a bit easier to refine. 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.” As you can see, the “price of oil” is misleading since there is no single price for oil. Oil prices just2trade review are typically quoted per barrel and in dollars (USD) around the world and no matter if it’s American oil or not.

The oil is considered to be very light, with a low sulfur content – considerably lighter and sweeter than Brent Crude, Dubai, or Oman. For example, the price of crude oil and related refined products rose significantly at the beginning of this century due to increased demand in emerging economies. In addition, only a small amount of money was invested in exploratory activities, contributing to the poor supply. WTI is valued as light oil, similar to Brent, but it doesn’t have the same worldwide reach. One factor contributing to this is that the United States generally forbids crude oil export (except for a few).

Brent Crude vs. West Texas Intermediate (WTI): The Differences

That honor goes to Brent, which is used as a benchmark globally in two-thirds of oil contracts. Brent crude and WTI crude are the most popular benchmarks, but their prices are often contrasted. The difference in price between Brent and WTI is called the Brent-WTI spread. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

Oil Prices on Course for Another Weekly Dip as OPEC+ Looks to Boost Production

The “American Petroleum Institute Gravity” is called options as a strategic investment the “API Gravity,” a metric that evaluates how light or heavy crude oil is compared to water. West Texas Intermediate (WTI), also known as Texas Light Sweet on occasion, is a key oil benchmark in the commodities market. There are three such benchmarks, and the other two are Brent crude and Dubai.

Top tips to trade WTI

Whereas, Brent crude oil is produced in the North Sea, primarily in the United Kingdom and Norway. Low inventories may suggest a tight supply and drive prices up, while high inventories can put downward pressure on prices. Economic growth in major economies like the United States, Europe, and China drives demand for oil, which can lead to higher prices. Oil production by non-OPEC countries, such as the United States, Russia, and Canada, also affects global supply and WTI prices. The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made.

• When the price difference between the two assets deviates significantly from its historical mean, traders may long the undervalued asset and short the overvalued one.
• This specific grade is described as ‘light’ due to its relatively low density and ‘sweet’ because of its low sulfur content.
• However, it’s important to remember that trading involves risk, and gains are not confirmed.
• Oil produced from any location can be considered WTI if the oil meets the required qualifications.2 Spot and futures prices of WTI are used as a benchmark in oil pricing.
• However, Brent crude oil, although also considered a high-quality oil, tends to have a slightly higher sulfur content than WTI.
• Today, the town is tiny, but is home to a vast interconnection of pipeline and storage for crude oil.

WTI is a light, sweet crude oil, which refers to its physical characteristics. As WTI is priced in U.S. dollars, fluctuations in the Dollar’s value can affect the price of oil. A weaker dollar can make crude oil more attractive to foreign buyers, increasing prices. The Organization of the Petroleum Exporting Countries (OPEC) regulates global oil supply significantly. Changes in OPEC production quotas or compliance levels can significantly impact WTI prices.

Oil Rig Count Plunges Amid Scary Price Environment

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 US investment bank Goldman Sachs estimates the proportion of crude oil used for primary materials production to be 45 per cent. Oftrb.com is a comprehensive energy portal, the main columns include crude oil prices, energy categories, EIA, OPEC, crude oil news, basic knowledge of crude oil, etc.

In conclusion, WTI, or West Texas Intermediate, is a pivotal benchmark in the oil market that significantly influences both the stock market and the broader economy. The comparison with Brent crude highlights regional influences on pricing, underscoring WTI’s importance in global trade. For investors, WTI offers various avenues for engagement through futures contracts and ETFs, linking oil prices to the performance of energy-related stocks. Understanding WTI’s role not only provides insight into the energy sector but also serves as a valuable indicator of economic conditions, making it essential knowledge for market participants. It’s a specific grade of crude oil produced primarily in the United States, specifically in the Permian Basin region of Texas. WTI is considered a high-quality crude oil because it’s light in density and low in sulfur content, making it easier to refine into gasoline and other products.

Fakhira Sh26

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