WTI oil, along with other light grades, belongs to the benchmark. With the smallest amount of sulfur in its composition, WTI is applicable for the production of light fractions. Despite the fact that the European counterpart, Brent, is heavier, this brand managed to displace the considered type from the position of the price leader in 2011. For what reason this happened and what else you did not know about WTI, we will tell in the article.
Why is oil graded?
For those who are relatively unfamiliar with the oil and gas industry, this question will seem normal and reasonable. Constantly watching the news of the economy, the viewer is faced with such varieties of oil as Brent, WTI, Urals, etc. Many people think that there is only one oil, but the chemical composition differs depending on the fields. Some are lighter due to the small amount of sulfur, some are heavy due to the content of a larger amount of sulfur in the composition than other brands.
Given that lower sulfur content leads to lower processing costs and the yield of light fractions, such as gasoline, kerosene, jet fuel, light oils have greatercompetitive advantages, and the lightest of them are taken as reference. It is for this reason that oil is divided into grades. The price for each brand is formed relative to the exchange value of the reference oil.
Reference oil grades
As noted above, today the prices for oil futures are formed based on Brent and WTI oil quotes. The difference between them, apart from the chemical composition, is as follows:
- Brent is a marker of European oil produced in the North Sea. Serves as a guideline when setting prices for black gold in the European and Asian regions. Currently the benchmark for 70% of all fossil fuel export trade.
- WTI is a grade of oil, the price of which is used as a starting point for price formation in the United States of America, as well as Canada. For a long period in the twentieth century, it was this brand that was considered the single standard for all world trade, until it was replaced by Brent in the 70s.
WTI oil - what is it?
West Texas Intermediate (WTI) is an American crude produced in Texas. Oil grade WTI contains about 0.24% sulfur. Based on this, it is attributed to sweet crude (having less than 0.5% sulfur) oil. It is sweeter than Brent, which contains 0.37% sulfur. WTI is cleared primarily in the Midwest and Gulf Coast regions of the United States. In comparison, crude oil from the Bakken Formation in Montana, North and South Dakotais light at 43 degrees API. Heavy oil from the oil sands of Alberta, Mexico and the oil sands of Venezuela is estimated by the American Petroleum Institute at 20 degrees API.
Mexico buys mid-grade WTI oil from the US to blend it with heavy oil, which can then be exported to places with refineries that cannot process heavy oil. This blending gives Mexico a higher price and a wider international market for its oil, which can be exported to, for example, the People's Republic of China.
Opposition of standards
In February 2011, WTI oil quotes were at $85 per barrel. At that time, the price of Brent was $103 per barrel. The reason that most pointed to such a gap was that Cushing had peaked throughput due to an oversupply of oil inside North America.
At the same time, Brent quotes rose in response to civil unrest in Egypt and throughout the Middle East. Because Cushing-priced WTI inventory could not be easily transported to the Gulf Coast, WTI crude oil could not be arbitrated to return those prices to parity.
U.S. coastal oil futures were closer to Brent than WTI. In June 2012, the Seaway pipeline, which shipped oil from the Gulf Coast to Cushing, changed its flow direction to transportoil with the price of WTI on the coast of the Gulf of Mexico, due to which it was planned to reach the quotations of the Brent brand. However, the difference in prices persisted and was large enough that some oil producers in North Dakota trucked their product and shipped it by rail to the Gulf Coast and also east, where it reached the same price as European oil. markings.
However, Brent continued to cost $10-$20 more than WTI for 2 years (until Q2 2013). By July 2013, that difference had narrowed to $4. By January 2014, the spread between the two widened again to over $14, but narrowed to $4 by the end of 2014.
Current oil prices
Final Brent oil prices averaged $81 a barrel in October, up $2 from the same brand in September. Despite the increase in average monthly prices, spot prices for Brent oil fell from $85 per barrel, which were set on October 1 this year, to $75 per barrel at the end of the session on October 31.
Forecasts for 2019
Experts at the International Energy Agency expect Brent spot prices to average $72 in 2019 and WTI fossil fuel prices to average about $7 a barrel below Brent in the coming period. The values of futures and options contracts of the New York Mercantile Exchange on WTI are expected inrange from $53 to $83 per barrel. This will only happen if the confidence level is 95%.
For Russia, of course, this prospect is not just comforting, but the most attractive. Since the Russian Federation continues to be dependent on oil, an increase in oil prices will have a positive effect on the ruble exchange rate and macroeconomic stability.