WTI definition

What is West Texas Intermediate?

West Texas Intermediate (WTI) is a blend of several US domestic light sweet crude oils. It is drilled and processed in the US, and it is mostly refined in the Midwest and on the Gulf Coast. WTI is mainly used as a benchmark on the US oil market.

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WTI as an oil benchmark

WTI is used as a benchmark for the US oil market because it is drilled from inland US states such as Texas, Louisiana and North Dakota. This means that there is restricted access to shipping ports and subsequent world transport links.

Another major benchmark used on the crude oil market is Brent crude, which is drilled in the North Sea and therefore has easy access to transport links and a wider range of markets around the world. As a result, Brent is used as a benchmark for the wider oil market; while WTI is used mainly as a benchmark for the American market.

Different benchmarks are used depending on the composition and quality of the oil being traded:

  • Light sweet oil flows easily at room temperature and has sulphur levels below 0.5%. Types include WTI and Brent crude
  • Heavy sour oil cannot flow easily at room temperature and has sulphur levels above 0.5%. Types include Dubai crude and Omani crude

Benchmarks are important in the oil market because not only do they enable traders to easily track the price of crude, but they also tell a trader where an oil has come from and what its composition is.

This is needed because the eventual use of the oil depends heavily on the field it comes from. As a result, the benchmarks allow oil traders to know what type of oil they are trading and – if trading futures contracts – which type of oil will eventually be delivered.

What you need to know about the WTI crude oil market

You should be aware that as a light sweet oil, WTI is easier and cheaper to refine because it is less viscous and needs less treatment to remove excess sulphur when compared to heavy sour oils. As a result, WTI is often in higher demand, particularly on the domestic American market.

The price of WTI tends to move in correlation with the price of Brent crude, as they are both benchmarks for light sweet oil. However, different global events will cause the value of each commodity to differ – especially given that Brent is used as a benchmark for the wider light crude market.

Finally, because WTI is drilled and blended in the US, traders should keep up to date with any shifts in the American oil markets, specifically shale output which could affect the price of WTI.

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