What we talk about when we talk about crude oil
While both WTI and Brent are light and sweet crude, differences in geography and chemical composition influence the Brent-WTI spread.
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West Texas Intermediate (WTI) and Brent crude oil are two of the most actively traded oil futures and the world’s two most important crude oil benchmarks.
While WTI and Brent generally move in tandem, they are not perfectly correlated due to compositional and geopolitical differences.
WTI versus Brent
As the name implies, West Texas Intermediate is a blend of crude extracted from American oil fields in Texas, Oklahoma, New Mexico, Louisiana, and North Dakota, while Brent is extracted from oil fields in the North Sea.
While both WTI and Brent are light and sweet crude, WTI is sweeter and lighter.
“Light” refers to the density of the oil. Lighter oil is easier and more profitable to refine. With a lower density and lower boiling points, it is more efficient to vaporize and separate.
“Sweet” refers not to the taste (gross) but the sulfur content of crude oil. The New York Mercantile Exchange defines sweet crude oil as having a 0.42% or less sulfur content. As sulfur must be removed during the refining process, sweet crude is easier to refine into gasoline.
Geography
WTI is extracted in the US and transported via pipeline to Cushing, Oklahoma. Its landlocked location makes transportation more difficult and expensive compared to Brent crude, so WTI’s market is typically less international. Brent crude’s waterborne location on the North Sea enables easy transportation across the globe in large volumes.
WTI/Brent spread
The price difference between WTI and Brent can hinge on geopolitical conditions, logistical bottlenecks, and trade policy.
While the prices of both Brent and WTI have risen as tanker traffic in the Strait of Hormuz has plunged 98.5%, the conflict is causing Brent to trade at a risk premium, as Brent is more affected by shipping disruptions in the Strait of Hormuz. If oil tankers can’t traverse the Persian Gulf, global refineries will scramble to buy oil elsewhere, paying a premium for Brent-indexed oil that doesn’t have to pass through the strait.
