Crude Oil: Brent x WTI

Oil Trading

When it comes to commodities, crude oil can be considered one of the most popular options for trading. However, there are different grades of crude oil, depending on various factors, which can affect the value of the asset. Therefore, having an understanding of important concepts such as the Brent vs. WTI, can be quite useful in making business decisions.

To better understand the information and increase your knowledge in this regard, let's take a look at the most traded versions of crude oil.

Types of Crude Oil

There are different types (also called grades or grades) of crude oil. Each is distinguished based on its properties that determine processing requirements. One of the main characteristics is the percentage of sulfur in its composition. Crude oil containing less than 1% sulfur is called “sweet” and can be considered better for production.

Density is another important parameter to remember: it is measured in API gravity degrees (an index created by the American Petroleum Institute) and varies from light to heavy. Light oil needs less processing and is generally more valuable.

“Sweet” light crude is the preferred type among producers because it offers better oil refining opportunities than other versions.

Insights

As there are a variety of types of crude available, it is essential to have a price standard for valuing this commodity. Today there are several benchmarks used in different parts of the world: the most common are Brent, WTI and Dubai.

Brent Crude Oil

This reference generally refers to crude oil extracted from the North Sea region. It is light, “sweet” and considerably easy to transport to remote locations, which is another important factor for the oil industry. About two-thirds of global oil contracts are based on the price of Brent, making it the most widely used benchmark (particularly in countries in Europe, the Middle East and Africa).

WTI

WTI means West Texas Intermediate and it is widely used for crude oil produced in the United States, Canada, Mexico, South America.

It is extracted from wells in the United States and distributed by pipeline, which makes it more expensive to transport than oil bought at sea. WTI crude oil is also light and “sweet” and highly valued in the global market.

Dubai

This reference is used in reference to oil produced in the Middle East: Dubai, Oman, United Arab Emirates. The quality of Dubai crude oil is slightly inferior compared to previous benchmarks: it is heavier and has a higher sulfur content.

Other types of crude are evaluated against these benchmarks. There is a certain differential that helps to establish its value based on the characteristics mentioned above, such as density, sulfur content, production and transportation costs, etc. Different countries can use both benchmarks to determine local producer prices.

Brent vs. WTI: which one to choose for trading?

As these two references are most commonly used by growers, they also remain considerably popular with traders. Being both almost equally light and “sweet”, they are quite similar in quality and perfectly suited for refining.

However, there is some difference when it comes to the location of oil fields, which affects the price of production and transport.

Over the years, WTI and Brent oil prices have often gone hand in hand with global changes, although they sometimes diverge due to regional political and economic situations.

Therefore, it is up to the trader to choose between these benchmarks and monitor events that could cause price changes and possibly create a promising trading opportunity.

trading crude oil

Crude oil prices are affected by a number of factors and are subject to fluctuations. The main factors influencing price changes are as follows:

Changes in the balance between supply and demand. These are often driven by changes in global economic conditions.

For example, there was a significant drop in Brent and WTI prices at the start of the Covid-19 pandemic in March-April 2020, caused by a sudden drop in demand.

political uncertainty. In turbulent times, disruptions to oil production and transportation can occur and have a significant effect on oil prices.

Take a look at recent price fluctuations driven by global political uncertainty surrounding the events in Ukraine: you can see that the price of WTI oil went from $90 to $125 over the course of a week and then back to its previous level. in the same period of time.

Crude Oil: Brent x WTI

There are also other events that are unlikely to appear on the main pages of news sites, but which could have an impact on crude oil prices.

These include reports from organizations involved in oil production and monitoring, such as the Organization of Petroleum Exporting Countries (OPEC), the US Energy Information Administration (EIA), the American Petroleum Institute (API), etc.

Have in mind: When trading crude oil, it is important to keep up with global economic and geopolitical news. To stay up to date and never miss events that could significantly increase or decrease prices, you can use economic calendar on your broker's website. It provides updates on crude oil inventories that may affect the balance between supply and demand.

When it comes to commodities, crude oil can be considered one of the most popular options for trading. However, there are different grades of crude oil, depending on various factors, which can affect the value of the asset. Therefore, having an understanding of important concepts such as the Brent vs. WTI, can be quite useful in making business decisions.

If you haven't used the economic calendar for more business ideas, check out an article with step-by-step instructions on how to make the news work for you here.

Crude Oil Summary: Brent vs WTI

If you are interested in commodities, consider the crude oil market, which can offer interesting opportunities for trading.

To make the most of them, it's important to stay up-to-date with current economic and geopolitical situations around the world and make quick decisions based on the information you acquire.

With Brent and WTI considered the most common benchmarks for global crude oil prices, it is up to the trader to choose between them and be on the lookout for any news that could cause prices to change and create an opportunity to make a trade.

 

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