West Texas Intermediate (WTI) vs. Brent Crude Oil Benchmarks

So, you’ve thought about trying your hand at commodity investing and think the energy sector might match your objectives. In the news, you hear about oil almost daily, and you’ve identified crude oil as your commodity of choice. But there’s more than one type of crude oil traded on U.S. exchanges. In this article, we’ll focus on two: West Texas Intermediate (WTI) Crude Oil and North Sea Brent (Brent) Crude.

Before deciding which crude oil might best meet your investing objectives, consider the similarities and differences between these two commodities, how their prices are affected by global economic forces, and what role local economics might play in differentiating WTI versus Brent crude prices.

But first, let’s explore the different type of crude oil blends. 

Types of crude oil: Light and sweet vs. heavy and sour

Just like there are different types of crude oil, there are also different crude oil blends, typically classified according to their capacity to be refined into gasoline. WTI and Brent crude are both classified as light and sweet crude oils. Crude oil that is lighter in density is easier to refine into gasoline, while oil with a heavier density is more difficult to refine.

The standard oil density measurement is based on American Petroleum Institute (API) gravity. With numbers falling between 10 and 70, the lighter the oil, the higher the API gravity number. For example, oils in the high API gravity range—light oils—often are light enough to float on water and are easier to refine. Heavy oils in the lower range of API gravity scores will sink in water.

What about the term “sweet”? It doesn’t refer to taste but to the crude oil’s sulfur content, and the cutoff is 0.5%. Sulfur content higher than 0.5% is considered sour; lower than 0.5% is considered sweet. The sweeter the oil, the easier it is to refine into gasoline and other petroleum-based products.

So, crude oil that is both light and sweet is easier to refine. And these two qualities make up the benchmark for premium oils. Brent Crude is often considered the global benchmark for oil because roughly two-thirds of the world’s oil is priced off Brent Crude futures. WTI Crude Oil, also known as light sweet crude, is considered the U.S. benchmark for pricing oil. 

WTI vs. Brent Crude: What’s the difference?

While both are considered light sweet crude, they do have different trading volumes depending on each commodity’s futures contract months. And even though both trade on U.S. exchanges and their prices are correlated, meaning they tend to move together, there are times when WTI is more expensive than Brent and vice versa.

Let’s explore these differences in more depth.

Extraction locations 

• WTI Crude Oil is extracted from fields located in Texas, North Dakota, and Louisiana of the United States.
• Brent Crude is extracted from the North Sea near Europe; its oil fields include Brent, Ekofisk, Forties, and Oseberg.

Oil density

• WTI has an API gravity of 39.6°, making it very “light.”
• Brent has an API gravity of 38°—still quite light, but it’s not as light as WTI.

Sweetness

• WTI has a sulfur content of 0.24%, making it very “sweet.”
• Brent has a sulfur content of 0.40%, well under the 0.50% benchmark, but it’s not as sweet as WTI.

Transportation

• The WTI delivery point is Cushing, Oklahoma, a landlocked area that’s centrally located around the major oil fields but far from where most oil and refined products—such as gasoline and petrochemicals—are ultimately destined, making it more difficult to transport.
• Brent is extracted at sea, making it easier to transport.

Exchanges

Futures on these major crude oil benchmarks are listed on U.S. and European exchanges:

• The most widely traded WTI Crude Oil contracts (CL) are traded on the NYMEX, one of four exchanges owned by the CME Group.
• Brent Crude’s primary exchange is the Intercontinental Exchange (ICE), but the CME Group also lists a Brent Crude contract (BZ), although volume in the CME contract is much lower.

Pricing

When it comes to pricing, oil quality isn’t the only consideration. Location, delivery logistics, and global supply and demand also play a part in oil trading.

Global and local economic forces influencing the WTI/Brent spread

In 2011, amid tensions in the Middle East, fears that the Suez Canal would be closed caused Brent prices to trade at a premium to WTI. The spread widened even more after Iran threatened to close the Strait of Hormuz, a shipping route through which 20% of the world’s oil was transported at that time. By the end of 2011, Brent was trading $25 above WTI.

In 2015, the WTI/Brent spread dropped because of events in the United States and the Middle East. Iran, whose oil is benchmarked to Brent crude, agreed to increase flows into the market. This created more supply, sending Brent prices lower. At the same time, U.S. rig counts declined, while WTI export activity increased. The increased oil exports decreased U.S. oil production and supply, pushing WTI prices higher relative to Brent, but the conversion was short-lived. Brent has traded at a premium to WTI since early 2016.

By the middle of 2018, the WTI/Brent spread widened to more than $6 per barrel. Many analysts attributed the increase to distribution bottlenecks in the United States and competition from Canadian oil.

In early 2020, the killing of a top Iranian commander gave rise to Middle East tensions. Crude oil prices did drop after this event, but the price drop may also have been caused by the oil price war between Russia and Saudi Arabia. This could’ve been a short-term move had it not been for worries about oil inventories during the coronavirus pandemic, which took crude prices much lower. Crude oil prices recovered after April 2020 and, with the exception of the April low, the WTI/Brent spread has remained relatively narrow.

Crude oil is a major factor in markets and industries worldwide, so financial news outlets and traders across the globe closely monitor the rise and fall of crude oil futures. And although WTI Crude Oil and Brent Crude are two highly correlated commodities, each can respond differently to geopolitical and local economic forces.