West Texas Intermediate
What Is West Texas Intermediate (WTI)?
WTI crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. It is one of the highest-quality oil, produced mainly in Texas, US. After the extraction, WTI travels to the Gulf of Mexico and goes through the refineries.
What Does WTI Mean?
WTI means West Texas Intermediate. The name comes from the extraction source as Texas is the state located in the middle part of the US, but oil sites are in the west part of it. The world calls WTI the “light sweet oil” due to its structure.
The “lightness” comes from the low density of the oil. Also, WTI contains a meager amount of sulfur, making it easier to refine. Sulfur lowers the yield of various refined petroleum products such as gasoline, diesel fuel, and even plastics. Thus, the price for this oil is usually higher, making it more profitable.
Development of the Physical WTI Market
Before 1981, the US controlled the spot market for WTI. After the price decontrol, WTI acquired several trading centers in various US states. Later in the 1990-s, oil prices collapsed, and production shrank in Cushing (one of the WTI producers). The collapse came along with the rise of the WTI spot and futures markets. Futures helped a lot in decreasing the volatility of the oil because they act as a hedging tool. Now, WTI is one of the best oils in the market, thanks to its’ quality and profitability.
The Relevance of WTI Trading at a Given Time
WTI is one of the leading indicators of oil price, along with Brent and Dubai Crude. Traders and investors worldwide watch the WTI price closely to analyze the upcoming economic fluctuations. There is a widely accepted opinion that oil price comes in tandem with inflation. The rising cost of commodities boosts the expenses for energy-intensive companies, increasing the price of the undertaken goods and materials. However, some researchers deny the correlation between oil prices and inflation.
WTI has one of the most considerable trading volumes across all commodities. Thus, the slippage in trading is minimal, and the spreads are tight. Try trading WTI oil on a demo account to check it yourself.
WTI vs. Brent
Investors often compare WTI to Brent crude, an oil benchmark for two-thirds of the world’s oil contracts based on oil extracted in the North Sea. WTI has a higher quality than Brent, so it’s expected to be a little more expensive. However, that is not always true. While these oils trade at similar price points, each one has its unique supply and demand market, and therefore its price reflects its individual market fundamentals.
Both WTI and Brent are great options for commodity trading as they both reflect the price of essential assets. News like OPEC meetings and geopolitics move the price significantly and provide us with many opportunities to trade on the WTI news. Try it out by yourself on a demo account and unleash the potential of oil trading!
2022-06-06 • Updated