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Brent vs WTI: Difference between Brent Crude and WTI Crude 

TABLE OF CONTENTS

Brent vs WTI: Difference between Brent Crude and WTI Crude 

Brent vs WTI: Difference between Brent Crude and WTI Crude 

Vantage Updated Updated Wed, 2024 January 24 06:45

Crude oil, an essential commodity used globally, plays a pivotal role in the world’s economy.  Its derivatives, such as gasoline, diesel, and various petrochemicals, are fundamental in powering vehicles, heating homes, and producing everyday items like plastics and pharmaceuticals. Moreover, crude oil’s influence extends to sectors like agriculture, where it is integral in the manufacturing of fertilisers and pesticides, crucial for enhancing crop yields and food production. 

In the dynamic world of oil trading, understanding the differences between the various types of crude oil is important for all traders participating in the oil trade. This knowledge aids traders in more effectively aligning each product with their portfolio strategies. 

In this oil trading guide, we’ll delve into the two leading oil benchmarks: Brent Crude and West Texas Intermediate (WTI) Crude and explore their similarities and differences. 

Key Points 

  • Brent Crude oil, sourced from the North Sea, is used as a global benchmark, while West Texas Intermediate (WTI) Crude oil, sourced from the U.S., is known for its low sulphur content and primarily used in the American market. 
  • Both Brent and WTI Crude oil prices are affected by factors like geopolitical events and supply-demand balance, and can be traded using instruments such as ETFs, company stocks, and CFDs. 
  • The decision to trade Brent or WTI Crude oil depends on the trader’s goals and risk tolerance, with Brent being more influenced by global events and WTI more by U.S. market conditions. 

What is Brent Crude Oil? 

Brent Crude oil is a major grade of oil that’s sourced from the North Sea, specifically from the region that lies between the Shetland Islands and Norway [1]. This oil is a combination of crude from various drilling sites in the North Sea, which includes the Brent, Forties, Oseberg, and Ekofisk oil fields. It is best known for its properties that make it suitable for producing products like gasoline and middle distillates such as diesel and jet fuel.  

Brent Crude is a key reference for the oil markets, setting prices for purchases across Europe, Africa, and the Middle East and traded on the Intercontinental Exchange (ICE). Its widespread use as a price benchmark reflects its importance in the global oil industry.  

What Affects the Price of Brent Crude Oil 

The price of Brent Crude oil, like any commodity, is influenced by a multitude of factors including: 

  • Geopolitical events 
  • Supply and demand dynamics 
  • Currency fluctuations 
  • Global economic performance 

Geopolitical tensions in oil-producing regions in particular, can create supply bottlenecks, driving up prices, whereas periods of political stability and strong production can have the opposite effect.  

Read our coverage of the latest conflict between Israel and Palestine to understand how geopolitical tensions can impact the financial markets. 

The balance between supply and demand is particularly sensitive in the crude oil industry; an oversupply can lead to lower prices, while an unexpected increase in demand or a disruption in supply (like geopolitical tension or production cut), can cause prices to spike.  

Any of these factors alone or combined, will contribute to the volatility of Brent Crude’s price in the global markets. 

How to Trade Brent Crude Oil? 

Investors and traders can utilise the various instruments listed below to gain exposure to the price movements of Brent Crude oil. Each financial product can cater to different risk appetites and trading strategies.  

Here’s a quick breakdown of the financial products to consider when considering Brent Crude oil. 

1. ETFs 

Exchange-Traded Funds (ETFs) tracking the price of Brent Crude oil provide an accessible means for investors to enter the oil market. ETFs are investment funds traded on stock exchanges, much like stocks, and they often mirror the performance of Brent Crude prices. They offer the advantage of being easy to buy and sell, providing liquidity and flexibility without the need for investors to directly handle contracts for physical oil. An example of the ETF that tracks the price of Brent Crude oil is the United States Brent Oil Fund LP (NYSEARCA: BNO). 

2. Stock 

Stock of companies in the oil sector is another method of trading Brent Crude oil indirectly. Examples of such stocks include Exxon Mobil Corp (NYSE: XOM), Chevron Corporation (NYSE: CVX) and TotalEnergies SE (NYSE: TTE). 

These companies can be involved in the exploration, production or refinement of Brent Crude and their stock prices are often tied to oil prices. However, it’s important to be mindful that individual company factors such as management decisions, production efficiency, and exploration success can also significantly impact stock prices.  

3. Contract for Differences (CFD) 

CFDs present another trading option for traders to trade Brent Crude oil without buying or selling the physical commodity. Traders can seize potential trading opportunities on price movements of Brent Crude by speculating on the rising (going long) or falling price (going short).  

CFDs provide traders with flexibility but it does come with their own set of risks and may not be suitable for all. Interested in starting CFD trading? Open a live account with Vantage today and begin trading in oil CFDs. 

WTI-crude-oil-dashboard

What is West Texas Intermediate (WTI) Crude Oil? 

WTI Crude oil is a specific grade of crude oil that is known for its relatively low density and low sulphur content, making it a “sweet” crude. WTI, primarily refined into gasoline, is sourced from oil fields in Texas, North Dakota [2], and Louisiana and is predominantly traded in Cushing, Oklahoma. The quality of WTI makes it a desirable commodity on the international market, where it competes with Brent Crude as a global pricing standard. 

What Affects the Price of WTI Crude Oil 

The price of WTI Crude oil is influenced by a variety of factors, including:  

  • Supply and demand dynamics  
  • Inventory levels in the US  
  • Geopolitical events 
  • Market speculation  

Domestic factors such as US oil production rates, pipeline changes, and stockpile reports can also have immediate impacts on WTI pricing. 

Additionally, global economic conditions, OPEC’s production decisions, and emerging energy technologies also play significant roles. Extreme weather conditions, such as hurricanes, can affect offshore drilling operations and refinery production, leading to price volatility

How to Trade WTI Crude Oil? 

Trading WTI Crude oil provides opportunities for investors and traders to engage with the commodity market through several different financial instruments, each offering a varying level of market participation and risk exposure. 

1. ETFs 

Traders can trade WTI Crude oil using ETFs. These funds will track the price of WTI and trade on stock exchanges like regular stocks providing liquidity and flexibility. By trading an ETF, investors can have exposure to oil prices, which can be a strategic asset in a diversified investment portfolio.  

An example of the ETF that tracks the price of WTI is the United States 12 Month Oil Fund LP (NYSEARCA: USL)

2. Stock 

Another method for trading WTI Crude oil indirectly is by trading stocks of companies that operate in the oil industry, specifically those that produce, refine, or sell WTI-related products. The revenue generated by these companies will be linked to the price of WTI, as it affects their bottom line.  

Traders can potentially trade these companies to benefit from the movements of the WTI Crude oil. Examples of such stocks include ConocoPhillips (NYSE: COP), Marathon Oil Corp (NYSE: MRO) and Pioneer Natural Resources Co (NYSE: PXD). 

3. Contract for Differences (CFD) 

Traders can also utilise CFDs to trade the price movement of WTI Crude oil without owning the underlying asset. When it comes to trading CFDs, traders can seize trading opportunities on the rising (going long) or falling price (going short) which can result in returns if their predictions are correct.  

Read our comprehensive guide on oil CFDs to understand the risks and benefits associated with oil CFD trading. 

Key Differences between Brent and WTI Crude Oil 

When delving into the world of commodities trading, understanding the difference between Brent and WTI crude oil is fundamental for every trader. These benchmarks serve as crucial indicators for pricing, with the Brent WTI spread being a closely monitored metric that highlights the disparity in pricing between the Brent Crude oil spot price and WTI Crude oil spot price.  

Here are some other key differences between these two types of crude oil: 

Extraction Location 

Brent Crude oil, is extracted from the North Sea and includes Brent Blend, Forties Blend, Oseberg, Ekofisk, and Troll crudes—collectively known as BFOET.  

In contrast, WTI Crude oil is sourced from fields across Texas, North Dakota, and Louisiana in the United States. 

Transportation Logistics 

Transportation logistics also differentiate Brent and WTI crude oils. Brent crude is typically transported by tanker at sea, which makes it readily accessible to global markets and affects its pricing dynamics.  

WTI Crude oil, meanwhile, is often distributed through pipeline networks within the US, and while this can reduce transportation costs, it also sometimes limits its availability to the global markets. 

API Gravity 

API gravity is a measure used to determine how heavy or light a petroleum liquid is compared to water. If its API gravity is higher than 10, it is lighter and floats on water, while if it’s lower, it’s heavier and sinks.  

API Gravity significantly influences crude oil’s market price; as oils with a higher API gravity are typically preferred as they produce a larger proportion of high-demand products like gasoline and diesel during the refining process.  

With an API gravity of 38°, Brent Crude oil is a little denser than WTI Crude oil, which has an API gravity of 39.6°, indicating that WTI is slightly lighter. 

Sulphur Content 

The sulphur content in Brent and WTI Crude oil is a key determinant of quality, categorising the oil as “sweet” if it has low sulphur levels and “sour” if the levels are high. “Sweet” crude, with its low sulphur content, is preferred because it is simpler and less costly to refine, leading to fewer impurities.  

Brent Crude oil has a sulphur content of 0.40% and is less “sweet” compared WTI Crude oil has a lower sulphur level of 0.24%. This makes WTI slightly better in terms of ease of refining due to its lower sulphur level. 

Price 

Brent Crude oil closing price on 31 October 2023 is $87.41 while WTI Crude oil is $81.02 [4,5]. The price difference reflects their respective market positions and geographical spread. 

Brent’s higher price suggests a premium attributed to its international accessibility and wider use as a benchmark, indicative of global market trends. In contrast, WTI’s price is influenced by factors closer to home, such as domestic supply and demand balances, infrastructure constraints, and distribution efficiency within the US. 

Global Benchmark 

Brent Crude is often regarded as the international global benchmark for crude oil prices due to its widespread use and the diversity of its supply chain. It is sourced from multiple fields, which makes it representative of a broader market situation. 

Conversely, WTI Crude acts as a pivotal benchmark within the US, reflecting its origins as a domestically-sourced product. Traders and analysts often analyse the difference between Brent and WTI crude prices, utilising the Brent-WTI spread to assess the global economic health and to forecast market trends. 

Types Brent Crude Oil WTI Crude Oil 
Extraction Location Extracted from the North Sea; includes Brent Blend, Forties Blend, Oseberg, Ekofisk, and Troll crudes (BFOET) Sourced from fields across Texas, North Dakota, and Louisiana in the United States 
Transportation Logistics Typically transported by tanker at sea Often distributed through pipeline networks within the US 
API Gravity API gravity of 38°, making it slightly denser API gravity of 39.6°, indicating it is slightly lighter 
Sulphur Content Sulphur content of 0.40%, categorised as less “sweet” Sulphur content of 0.24%, making it “sweeter” and easier to refine 
Price as of 31 October 2023 $87.41 $81.02 
Global Benchmark Regarded as the international global benchmark for crude oil prices Acts as a crucial benchmark within the US and is slowly gaining influence on the global stage 
Table 1: Differences between Brent Crude oil and WTI Crude oil. 

Trading Brent Crude Oil and WTI Crude Oil: A Detailed Comparison 

In this section, we will do a deep dive into trading Brent Crude oil and WTI Crude oil: 

Market Liquidity 

Market liquidity refers to the ease in which an asset can be easily bought or sold in the market at stable and transparent prices.  

Brent Crude oil has a higher market liquidity due to its broader global reach, making it the preferred benchmark for many international traders. WTI Crude oil, while also highly liquid, is traded predominantly in North American, US markets, which can sometimes result in a more regional trading focus. 

Pricing Factors 

Brent Crude oil price is often shaped by international supply and demand trends, geopolitical tensions in oil-producing regions, and changes in global economic health.  

On the other hand, WTI Crude oil prices are more influenced by US supply and demand balances, stockpile levels, and US economic indicators. For example, transportation constraints in the US can significantly impact WTI Crude oil prices but may have little effect on Brent Crude oil prices. 

Trading Strategies 

Different trading strategies may be employed when trading Brent Crude oil versus WTI Crude oil due to their distinct characteristics.  

Brent Crude may be favoured for strategies that account for international market trends or global economic shifts. This is because Brent Crude oil is more sensitive to changes in the global landscape, such as international policy changes, economic sanctions, or fluctuations in currency exchange rates that could affect non-US oil demand and supply. 

In contrast, WTI might be better suited for strategies focusing on the US industry dynamics and inventory data. Traders can focus on the US economic outlook, infrastructure developments, or changes in US energy policies that can result in shifts in oil prices. WTI-specific strategies may also involve closely monitoring the weekly US Energy Information Administration (EIA) reports, which provide data on inventory levels—a key indicator that can drive price movements. 

Contract delivery 

Contract delivery refers to the location and manner in which the physical oil is delivered when a futures contract expires. For Brent Crude oil futures, the delivery is made to the Brent Dated market, which is a reference to a physical stream of oil from the North Sea.  

In contrast, WTI Crude oil futures contracts are delivered to Cushing, Oklahoma, which is a key crude oil hub in the United States. The delivery points are important as they can affect transportation costs, supply chain logistics, and the regional price differentials for the oil. 

 Brent Crude Oil WTI Crude Oil 
Market Liquidity  Higher market liquidity due to broader global reach. Preferred benchmark for many international traders. High liquidity, predominantly traded in North American, US markets, sometimes leading to a more regional focus. 
Pricing Factors Influenced by international supply and demand trends, geopolitical tensions, and global economic health. Influenced by US supply and demand balances, stockpile levels, and US economic indicators. US transportation constraints can significantly impact prices. 
Trading Strategies Suited for strategies accounting for international market trends or global economic shifts, sensitive to global landscape changes such as policy, economic sanctions, or currency fluctuations. Suited for strategies focusing on US industry dynamics, inventory data, US economic outlook, infrastructure developments, or US energy policies. Weekly EIA reports are key for WTI price movement insights.  
Contract Delivery Delivery made to the Brent Dated market, referencing a physical stream of oil from the North Sea.  Delivery made to Cushing, Oklahoma, a crucial US crude oil hub.  
Table 2: Trading factors comparison between Brent Crude oil and WTI Crude oil. 

Brent Crude Oil vs WTI Crude Oil: Which one is right for you? 

When deciding whether to trade Brent Crude Oil or WTI Crude Oil, it’s important to align your choice with your trading goals and risk tolerance. Here’s what you need to consider when weighing your options. 

Trading Goals 

Choosing between Brent Crude Oil and WTI Crude oil depends largely on your specific trading goals.  

If your aim is to participate in the global markets and tapping into global price movements, Brent Crude might align better with your trading goal as it is often influenced by international factors and tends to be the benchmark for other grades of oil worldwide.  

If your aim is to focus more on the North American, US market and you’re looking to capitalise on US-specific economic indicators, WTI could be the more suitable option. It is often preferred by traders who wish to leverage their knowledge of the US markets for potential gains. 

Risk tolerance 

Risk tolerance is another factor to consider before selecting the type of crude oil to trade.  

Brent Crude oil, being more exposed to geopolitical risks due to its wide use and transport routes that might pass through politically unstable regions, can experience sudden price swings if conflict arises. This might suit traders with a higher risk tolerance who can handle such unpredictability.  

WTI Crude oil, while also volatile, can be slightly more insulated from these international disruptions due to its landlocked nature and is influenced by the stability of the US market. If a more predictable risk profile within the framework of the US economy suits you, then WTI could be your preferred trading choice. 

Key Takeaways for Brent Crude Oil vs WTI Crude Oil 

In the realm of oil trading, the two heavyweight benchmarks—Brent Crude and WTI Crude—each possess distinctive characteristics and market influences, catering to various trading styles and strategies. Brent Crude, the international standard, is sensitive to global geopolitical and economic shifts, making it ideal for traders with an eye on the broader market trends.  

In contrast, WTI Crude, with its domestic US focus, is swayed by American industry dynamics and inventory data, appealing to those versed in U.S. market conditions. Investors’ preferences between Brent and WTI hinge on their specific trading objectives, risk tolerance, and whether they seek exposure to international volatility or prefer the relative stability of the US market. 

Trading Oil CFDs with Tight Spreads at Vantage 

Trade oil prices with Vantage and get the advantage of tight spreads on both Brent and WTI crude oil. 

Start Trading Oil CFDs with Spreads From 0.0 with Vantage. Sign up for a live account now. 

References

  1. “Brent Crude vs. West Texas Intermediate (WTI): The Differences – Investopedia”. https://www.investopedia.com/ask/answers/052615/what-difference-between-brent-crude-and-west-texas-intermediate.asp. Accessed 6 Nov 2023.
  2. “Brent Crude vs. West Texas Intermediate (WTI): The Differences – Investopedia”. https://www.investopedia.com/ask/answers/052615/what-difference-between-brent-crude-and-west-texas-intermediate.asp. Accessed 6 Nov 2023.
  3. “Energy Investing Basics: WTI vs. Brent Crude Oil – Charles Schwab”. https://www.schwab.com/learn/story/energy-investing-basics-wti-vs-brent-crude-oil. Accessed 6 Nov 2023.
  4. “OIL (BRENT) Price – Market Insider”. https://markets.businessinsider.com/commodities/oil-price?type=brent. Accessed 6 Nov 2023.
  5. “OIL (WTI) Price – Market Insider”. https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed 6 Nov 2023.

 

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