The difference between Brent oil and WTI (West Texas Intermediate) has once again interested market observers and the most curious in recent weeks, given the recent movements in prices.
The main, but not only, distinction has to do with their origin. Brent Crude is in fact extracted from the North Sea, between the Shetland Islands and Norway. While WTI is the point of reference for the US light oil market – it comes from the oil fields of Texas, Louisiana and North Dakota. Both of these types of oil are used primarily for refining into gasoline.
Their prices never coincide, as one is generally more expensive than the other. Despite this difference, they are both considered “light” oils due to the low density that characterizes them and which allows their processing and refining.
Below is a guide to the market and the fundamental differences between Brent and WTI. Which costs more and why?
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Oil: the Brent-WTI difference
As already mentioned previously, the first difference between the two types of oil concerns their origin and their respective price on the market.
The characteristics of Brent oil
It is more ubiquitous, and although it is aimed at European markets, most oil is priced using it as a benchmark. It is considered the reference point for all crude oil from West Africa, the Mediterranean and also for some crude oils from South-East Asia.
Brent is therefore directly linked to a broader market. This type of crude oil is more expensive than WTI: for years the price difference between the two was a few dollars but the Saudis abandoned WTI as a benchmark, together with Kuwait, for the heavier Argus Sour Crude Index (Asci), based on “medium sour” crude oil from the Gulf of Mexico. Iraq followed suit about a year later.
Furthermore, Brent oil is the result of a mixture derived from the union of different types of oil (Brent Blend, Forties Blend, Oseberg and Ekofisk) extracted from the North Sea.
The characteristics of WTI oil
It is also called West Texas Intermediate, a terminology that makes the origin of the black gold clear. It constitutes the benchmark for contracts traded on Nymex.
Compared to Brent, which is still valued as a sweet crude oil, WTI is considered more valuable as it is able to boast a lower sulfur input and a higher Api gravity – which measures density in relation to water. In the United States, the West Texas Intermediate is the preferred size and price model.
The price of West Texas Intermediate (WTI) is slightly lower than Brent. Offshore oil rigs, despite being more often the focus of news stories and damage, including the 2010 BP oil spill, are considered indicators of the health of the nation’s oil market.
Brent-WTI: which costs more and why?
Brent is produced near the sea, which generally makes it less exposed to transport costs – which in fact are considerably lower -, while WTI is produced in landlocked areas, which make costs more onerous unlike the first typology. However, this does not always have an impact on prices.
Based on the differences described so far, it would be natural to think of a higher cost of WTI oil. In reality, most of the time, it is Brent that boasts a higher price which is attributable to two factors:
- exponential increase in US production which depresses the WTI price;
- reduction in flows from North Sea platforms which causes Brent to rise.
The surge in Brent itself has been considerable since 2010 and was also accentuated by the strong demand from Asian markets. In fact, keep in mind that one of the factors that most influence the performance of the oil market is demand from the refinery sector and above all from Asia.
Why are these benchmarks important?
The price of oil is an important factor in the overall health of the energy sector and is one of the most traded commodities as it is influenced by almost all global macro events.
Further significant differences between Brent Crude and West Texas Intermediate depend on the influence of geopolitical problems: during periods of crisis, the spread increases greatly as political uncertainty leads to a surge in Brent crude prices. From this point of view, West Texas Intermediate is less subject to such fluctuations.
Read also: How to invest in oil: a complete guide
