West Texas Intermediate (WTI)

What is West Texas Intermediate (WTI)?

West Texas Intermediate, often shortened to WTI, is a crude oil stream produced in areas such as Texas and Southern Oklahoma in the United States.

It also acts as a benchmark for the US oil market and is regularly quoted by analysts and international news organizations to illustrate price movements.

Table of Contents Table of Contents

1. What is West Texas Intermediate (WTI)?
2. Key Takeaways
3. West Texas Intermediate (WTI) vs. Brent Crude
4. WTI Pricing
5. WTI's Importance for Fuel Prices
6. How to Trade WTI
7. The Bottom Line
8. FAQs
9. References

Show Full Guide

Table of Contents

1. What is West Texas Intermediate (WTI)?
2. Key Takeaways
3. West Texas Intermediate (WTI) vs. Brent Crude
Show Full Guide
4. WTI Pricing
5. WTI's Importance for Fuel Prices
6. How to Trade WTI
7. The Bottom Line
8. FAQs
9. References

West Texas Intermediate (WTI) vs. Brent Crude

Whenever the international oil markets are discussed, two main names are always mentioned: WTI and Brent Crude.

So, what is the difference between Brent and WTI? Well, there are several, and the first is where they are extracted.

WTI is taken from oil fields located in areas such as Texas and Southern Oklahoma in the United States, which makes it difficult to transport.

Brent Crude, meanwhile, is extracted from the North Sea, which lies between the UK, Denmark, Norway and the Netherlands. This makes it easier to transport.

They also differ in terms of their content. While they are both light, sweet crude, WTI is regarded as being both the lightest and sweetest. Light oils flow more freely at room temperature.

Due to their content, WTI is seen as being better for petrol production, while Brent is seen as a better oil to be refined for diesel fuel.

WTI vs. Brent. Which Is Most Important?

It’s impossible to say whether WTI is more important than Brent or vice versa. However, there are a few factors that you might need to consider.

Firstly, it’s estimated that the price of around two-thirds of the 100 million barrels of oil traded every day is derived from the Brent Crude benchmark.

While the price of Brent usually trades at a slight premium to WTI, the reality is that price movements will broadly mirror each other.

This is illustrated by charts showing the spot price movements of both WTI and Brent Crude over the past five years, according to Trading Economics.

WTI Pricing

So, what is the price of West Texas Intermediate? According to MacroTrends, it was trading at $74.86 per barrel on August 8, 2024. However, it’s important to acknowledge that this price will constantly change.

For example, when you’re looking at the historical price of WTI, you’ll see it increased from $12.23 per barrel in 1976 to a high of $99.06 in 2008, according to Statista.

Oil price traders love volatility, as it enables them to make money from this hugely important global commodity. It is simply a characteristic of price changes over time, according to The Oxford Institute for Energy Studies.

“In futures markets the changes are almost continuous,” it stated. “They occur both within and between trading days.”

The Institute also emphasized the importance of distinguishing between short-term price fluctuations from “episodic movements” that can characterize longer periods of time.

It cited the West Texas Intermediate price going from $17.65 per barrel at the beginning of January 1998 to $10.26 by the following February as a prime example.

“After that date the price movement was relentlessly upward with the WTI price ending the year at around $26.50 per barrel and peaking at $34.15 on 7 March 2000,” it added.

Impact of Fluctuations in the Price of WTI

Oil is a crucially important commodity worldwide, which means it tends to suffer from larger price fluctuations than more stable investments, such as bonds. Any increase in the price of oil will have a significant knock-on effect on the costs incurred by individuals and businesses.

Here are some of the main potential impacts:

• Increased raw material costs for businesses
• Higher petrol prices
• Soaring bills to heat homes
• Rapid inflation

What Causes Oil Price Fluctuations?

The oil price is affected by a number of factors. Many of them are actually interlinked and are constantly changing.

The global economy

When the economy is booming, there will be high demand for everything from products to transportation services. As a result, the price of oil is likely to rise.

Conversely, during recessionary periods, where demand is much lower, the price of oil could be expected to fall.

Political uncertainty

International conflicts and changes in political leadership can also affect the price of oil, especially if there’s uncertainty over how these factors may affect demand.

For example, if supply is expected to be disrupted due to an ongoing war, prices are likely to rise due to fears the commodity could become scarce.

Organization of the Petroleum Exporting Countries (OPEC)

This is an intergovernmental organization created in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. It currently has 12 member countries. It has the power to influence oil supply around the world by deciding to increase or decrease production.

According to the Organization of the Petroleum Exporting Countries, 79.5% of the world’s proven oil reserves are located in OPEC Member Countries.

The bulk of OPEC oil reserves are in the Middle East, amounting to 67.2% of the OPEC total.

WTI’s Importance for Fuel Prices

Of course, an obvious question is, “Why does WTI matter for fuel prices?” The answer is that it makes up a significant portion of the cost at the pumps. In fact, crude oil accounts for nearly 60% of the pump price of regular gasoline, according to the US Energy Information Administration.

The remaining 40% comes from refining costs, distribution & marketing, and taxes. Therefore, any increase in the crude oil price will have an impact on everyone.

How to Trade WTI

The good news when it comes to understanding what WTI means is that there are plenty of ways that oil can be traded.

The Bottom Line

The most accurate West Texas Intermediate definition is that it’s a crude oil stream produced in areas such as Texas and Southern Oklahoma in the United States.

WTI is a slightly lighter, sweeter crude than Brent and is more commonly used for petrol. Brent, meanwhile, is more often refined into diesel fuel. However, WTI is also a popular benchmark for the international oil industry, with analysts and commentators using it to help express price movements for the commodity.

Oil is a vitally important commodity for the world economy, and its price is largely influenced by supply and demand issues.

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