West Texas Intermediate (WTI) is a trading classification of crude oil and one of the most commonly used benchmarks in oil prices. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices.
With only 0.24 percent sulfur, WTI crude oil qualifies as “sweet” and has an “API Gravity” of 39.6 degrees, making it a “light” crude oil. The “American Petroleum Institute Gravity” is called the “API Gravity,” a metric that evaluates how light or heavy crude oil is compared to water. There are different types of crude oil—the thick, unprocessed liquid that drillers extract below the earth—and some are more desirable than others. For instance, it’s easier for refiners to make gasoline and diesel fuel out of low-sulfur or “sweet” crude than oil with high-sulfur concentrations. Low-density, or “light” white label cryptocurrency exchange software crude is generally favorable to the high-density variety for the same reason. 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.
But WTI’s reign as the global oil benchmark was overthrown by Brent crude in 2013. Trump’s proposed tariffs will lead to a trade war, dampening energy demand and prices in the process, Bank of America’s Francisco Blanch says. Because of the dynamic nature of supply and demand, the value of each benchmark is continually changing. Over the long term, a marker that an introduction to tick charts and how to trade them in futures markets sold at a premium to another index may suddenly become available at a discount.
As one of the world’s foremost sources of crude oil, WTI is a benchmark for the U.S. oil industry and investors. When you hear a reference to crude oil prices in a business report, it’s the price of West Texas Intermediate that is being quoted. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude.
The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa. The rise of Texas tea started back in the early 1980s, when the U.S. government’s decontrol of oil prices changed the trading mechanics of crude oil, which led to WTI’s commoditization.
- The fact that supplies are land-locked is one of the drawbacks to West Texas crude as it’s relatively expensive to ship to certain parts of the globe.
- The oil travels via pipeline from Texas to refineries in the Midwest and the Gulf of Mexico.
- “These risks to supply are definitely keeping the support here and offsetting to a degree concerns around the global demand outlook,” said John Kilduff, partner at Again Capital in New York.
- Should the value of a certain crude marker skyrocket, the owner of a call option would have the right— though not the obligation—to buy a specific number of barrels at a pre-determined price.
- Oil benchmarks are frequently referred to in the media as the price of oil.
What is West Texas Intermediate (WTI)? Definition and Meaning
West Texas Intermediate is the benchmark for the U.S. light oil market and is sourced from U.S. oil fields. Crude oil is a mixture of hydrocarbons found in liquid form underground and brought to the surface for refining into fuel and other products. Petroleum products are processed in refineries from crude oil and other liquids. Petroleum is a broad term that includes both crude oil and petroleum products.
What is WTI Oil?
If we’re going to be honest here, WTI’s fate was sealed years ago — and the latest proclamation that Brent crude has overtaken WTI as the global benchmark should be little more than an afterthought. The less expensive it is to deliver the product, the cheaper it is for the consumer. From a transportation standpoint, oil extracted at sea has certain advantages over land-based supplies, which depend on the capacity of pipelines. The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone.
Brent vs. WTI Crude Oil – What is the Difference?
In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX). 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. This grade is described as light crude oil because of its low density and sweet because of its low sulfur content. 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 top 10 trend following trading strategies that work and how to use them oil is also continuously rising.
Of course, tightening global supply will ensure that there will be demand for the light, sweet Texas tea. The United States recently reclaimed its crown as the world’s top oil producer, averaging just under 20 million barrels per day. Right now, more than 5 million barrels are extracted every day from West Texas oil fields. This is the light, sweet crude that flows out of Texas wells in the Permian Basin, and it is far more desirable than most, which is why buyers are willing to purchase it at a premium. Of course, you also have to consider how sweet or sour the crude is, which tells you how much sulfur it contains. “Sweeter” crudes have less sulfur, which makes them much easier to refine into products like gasoline or diesel, and thus much more attractive to refiners.
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Investors can also gamble on what will happen to the difference, or spread, between two benchmarks. Participants typically analyze the fundamentals of a specific oil source and guess whether the gap between two markers will widen or close. Like traditional oil options, these “spread options” are available on major exchanges. In addition to futures, market participants can also invest in options that are linked to a particular crude benchmark. Should the value of a certain crude marker skyrocket, the owner of a call option would have the right— though not the obligation—to buy a specific number of barrels at a pre-determined price. WTI refers to oil extracted from wells in the U.S. and sent via pipeline to Cushing, Oklahoma.