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Crude oil – Brent vs. WTI
What is the difference between Brent crude and WTI crude?
Brent crude and WTI (West Texas Intermediate) crude are the two primary benchmarks for global oil prices. When a price of oil per barrel is quoted, it is generally referring to one of these two oils, and the prices of Brent and WTI tend to be fairly close to one another.
The primary differences between the two are:
- Location: Brent crude is drilled in one of the four oil fields in the North Sea, between England, Germany and Scandinavia. WTI is drilled from oil wells in the United States
- Transport: Because Brent is drilled from the ocean and is water borne, it is less expensive to transport, as opposed to the more expensive WTI, which is transported through pipelines
- Gravity and sweetness: Brent is considered to be a light oil (as measured by density) and a sweet oil (as measured by sulfur content). WTI is lighter and has even less sulfur (sweeter)
- Supply: Approximately 60% of the world’s oil supply comes from Brent oil
Like most commodities, the price of Brent and WTI is driven primarily by supply and demand, and is extremely vulnerable to external factors. If, for example, members of OPEC (Organization of Petroleum Exporting Countries) decide to limit production of oil, the global supply will dwindle, and the price of Brent and WTI will rise. Alternately, when oil-rich countries (OPEC and others) produce excessive amounts of oil, the supply outweighs the demand, and the prices can drop.
How do CFD and commodities traders use crude oil?
Most trading on crude oil is in futures contracts, where both the buyer and seller agree on the price that they believe will be the price of oil at a predetermined date. Those who trade on oil CFDs are essentially predicting how the price of oil will move before the position closes. Brent contracts are traded on major exchanges, such as ICE (International Exchange), while WTI contracts are traded on the New York Mercantile Exchange.