Brent Crude and West Texas Intermediate (WTI): Oil Benchmarks
Oil benchmarks describe where the commodity originates, which determines its use and allows investors to track the price of a specific oil type.
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.
Both Brent Crude and WTI are light and sweet, making them ideal for refining into gasoline.
- Brent Crude and West Texas Intermediate dominate the oil market, and both dictate pricing in their respective markets.
- OPEC, a group of 13 of the most powerful oil-exporting countries, use Brent as their pricing benchmark. They are considered an extremely powerful group, as oil prices dictate the budgets and policies of many countries.
- The Shale Revolution of the early 2000s skyrocketed production in North America, leading to an oversupply in oil during that period, and relevant low pricing.
Brent Crude is more ubiquitous, and most oil is priced using Brent Crude as the benchmark, akin to two-thirds of all oil pricing. Brent Crude is produced near the sea, so transportation costs are significantly lower. In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous.
A surge of WTI production has led many traders to consider it an important pricing benchmark vs. Brent, if not even close to the total production of the latter.
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.
West Texas Intermediate (WTI)
In the United States, West Texas Intermediate is the preferred measure and pricing model. It is also slightly "sweeter" and "lighter" than Brent. West Texas Intermediate (WTI) is slightly lower in price than Brent. As of August 31, 2021, WTI was trading at around $68.50 per barrel, while Brent traded at $72.85.
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.
WTI vs. Brent Crude
There has been a trend, due to advancements in oil drilling and fracking, of West Texas Intermediate becoming cheaper than Brent Crude oil. Prior to this, Brent Crude tended to be cheaper than West Texas Crude. This has been dubbed the American shale revolution, and the increased production led oil prices to fall from above $100 to below $50 from 2014 to 2015.
The price of oil is a major factor in the overall health of the energy sector and is one of the most heavily traded commodities as it is influenced by almost every global, macro event.
Another factor that can lead to significant differences between Brent Crude and West Texas Intermediate is geopolitical trouble. During times of crisis, the spread blows out as political uncertainty leads to surges in Brent Crude prices. West Texas Intermediate is less affected because it is based in landlocked areas in the United States.