Brent vs WTI: Understanding Oil Benchmarks
Learn the difference between Brent and WTI crude oil - the world's two most important oil price benchmarks.
What Are Oil Benchmarks?
When you hear "oil prices" in the news, they're usually referring to benchmark prices. A benchmark is a standardized grade of crude oil used as a reference point for pricing other crude oils around the world.
The two most important benchmarks are:
- Brent Crude - The international benchmark
- WTI (West Texas Intermediate) - The North American benchmark
What is Brent Crude?
Brent crude is named after the Brent oil field in the North Sea, discovered in 1971. It's actually a blend of crude oils from several North Sea fields.
Key Characteristics
- Location: Extracted from the North Sea between the UK and Norway
- Quality: Light sweet crude (API gravity ~38, sulfur ~0.37%)
- Trading: Primarily traded on the ICE Futures Europe exchange in London
- Pricing: Used to price roughly two-thirds of the world's traded crude oil
Brent serves as the benchmark for oil from Europe, Africa, and the Middle East. It's the most widely used global benchmark because it can be easily transported by sea to refineries worldwide.
What is WTI (West Texas Intermediate)?
WTI is extracted primarily from oil fields in Texas and the surrounding US states. It's delivered and priced at Cushing, Oklahoma - a major oil storage hub.
Key Characteristics
- Location: Produced in the US, primarily Texas
- Quality: Light sweet crude (API gravity ~39.6, sulfur ~0.24%)
- Trading: Primarily traded on the NYMEX (New York Mercantile Exchange)
- Pricing: Main benchmark for oil prices in North America
WTI is slightly lighter and sweeter than Brent, making it marginally easier to refine into gasoline.
Why Do Prices Differ?
Brent and WTI prices don't always match. The difference between them is called the Brent-WTI spread. Several factors cause this spread:
Transportation and Logistics
- Brent is seaborne oil, easily shipped globally
- WTI is landlocked at Cushing, Oklahoma
- Pipeline capacity constraints can cause WTI to trade at a discount
Supply and Demand
- Regional supply disruptions affect each benchmark differently
- US shale production increases mainly impact WTI
- Middle East tensions affect Brent more directly
Quality Differences
- WTI is slightly higher quality
- Historically, WTI traded at a small premium to Brent
- Since 2011, Brent has generally traded at a premium due to logistics issues
Other Important Benchmarks
Beyond Brent and WTI, other regional benchmarks include:
| Benchmark | Region | Notes |
|---|---|---|
| Dubai/Oman | Middle East | Reference for Asian crude imports |
| OPEC Basket | Global | Weighted average of OPEC member crude |
| Urals | Russia | Russian export blend |
| Western Canadian Select | Canada | Heavy crude from oil sands |
Which Price Should You Watch?
- For global energy trends: Watch Brent - it reflects international supply and demand
- For US market focus: Watch WTI - it's more sensitive to US production and inventories
- For a complete picture: Monitor both and the spread between them
Large divergences in the Brent-WTI spread often signal important market dynamics like infrastructure constraints or regional supply issues.
Key Takeaways
- Brent and WTI are the two main global oil price benchmarks
- Brent is the international standard, pricing most of the world's crude
- WTI is the North American benchmark, tied to Cushing, Oklahoma
- Prices differ due to quality, transportation, and regional factors
- Watching both benchmarks provides a fuller picture of oil markets