Light and sweet crude oil is often just referred to as oil in the western hemisphere. West Texas Intermediate (WTI) crude oil can be defined as the underlying commodity of oil futures contracts at the New York Mercantile Exchange,
The reason behind WTI being called “sweet” is the fact that it’s about 0.24% sulfur. This is a lower concentration than what’s found in North Sea Brent crude. As a result, WTI is a high-quality oil that can be refined quite easily.
WTI crude oil is sweeter and lighter than competing major oil benchmarks such as Dubai crude and Brent crude. Further, this commodity is produced, refined, and consumed in North America.
WTI crude oil is an oil benchmark and this makes it important. Benchmarks are important in oil markets as they provide a price reference for sellers and buyers of crude oil.
There are several varieties of oil benchmarks, but there are three primary benchmarks:
The benchmark crude oil is basically oil that serves as a pricing reference, this makes it easier for buyers and sellers to determine the prices of a large variety of crude oil and blends.
There are approximately 200 varieties of crude oil, out of these, the most popular oil benchmarks are WTI crude and Brent crude. Their prices are usually contrasted and the difference in price is known as the Brent-WTI spread.
In theory, WTI crude should trade at a premium when compared to Brent crude. However, this isn’t always the case.
The reason for this is the fact that these two crude oil varieties have their own unique supply and demand market. So although they can trade at similar price points, the price will reflect its unique market fundamentals.
As a result, if you’re thinking about investing, you have to consider the different factors that can affect this commodity.
WTI crude oil is actually a blend of several domestic light sweet crude oils. It’s produced in different parts of the U.S., but it’s mostly refined in the Midwest and Gulf Coast areas.
Major trading hubs for WTI:
Although WTI is the highest-quality light sweet crude oil in the market, it’s not the most used. Brent crude, on the other hand, is the most popular across the globe. This dynamic won’t probably change anytime soon as the export of WTI can prove to be too expensive.