What is ‘West Texas Intermediate’?
West Texas Intermediate, more generally represented by the initials WTI, is also sometimes called Texas Light Sweet by certain brokers. It is actually a type of crude oil used by the economists as a standard value to determine the crude oil price as a commodity on the exchange markets, within the framework of futures contracts. This quotation is priced on the New York Mercantile Exchange, which is the principal world commodities exchange.
There are three major types of crude oil throughout the world that are used as oil reference prices according to their production zones. Therefore, for European oil, Brent from the North Sea acts as the reference, whereas for the OPEC countries, it is the Dubai crude which is referred to for the price determination.
As for the WTI crude oil, it is quoted in almost all economic announcements from this sector in the United States and North America.
The detailed characteristics of West Texas Intermediate
One of the characteristics of the WTI crude oil is that it is much lighter than Brent. It is also called Texas Light Sweet because of its low sulfur content (0.24%), which makes of it a sweet crude oil. More technically, WTI oil has an API density of 39.6 and a specific density of around 0.827.
Most of the time, the WTI is refined directly in the United States, mainly in the Midwest and near the Gulf Coast for practical reasons as the production sites are nearby.
How is the WTI quoted?
Until a few years ago, the price per barrel of WTI oil was systematically quoted at 1 U.S. Dollar more than that of Brent oil which is heavier and therefore less easy to refine. But this trend is no longer truly valid today.
The price of WTI is quoted on the NYMEX, or New York Mercantile Exchange, which is the American market where all the commodities are quoted.
As with all the financial markets, the price of WTI crude oil changes according to the difference between supply and demand and therefore according to the trades completed by investors. Various factors can therefore influence these price movements including:
- The quantity of oil produced.
- The global economic health, notably of the major importing industrialised countries.
- The volume of the American stocks as published each week in the economic calendar.
- The value of the American dollar which is the currency used for quoting this oil.
- The geopolitical situation of the OPEC oil producing countries.
Historic prices and quotes for the West Texas Intermediate
It is possible to consult the WTI historical prices on the Energy Information Administration website of the department of energy. The reference to look for is ‘WTI Cushing Oklahoma’.
It is generally noted that the barrel price of crude WTI is slightly higher than that of the Brent or Dubai barrel. It is often priced one dollar more than the Brent and two dollars more than the Dubai. However, sometimes the WTI barrel is less expensive than the Brent barrel, but this difference has never historically exceeded 27 dollars.
Several indicators are taken into account in the price calculation of the WTI barrel. Of course, it is mainly the law of supply and demand that influences the prices, but other fundamental factors can also have a more or less pronounced effect.
It is therefore advisable above all to monitor the weekly publication of American stocks which generally indicate excellent entrance points.
But all geopolitical current events in connection with oil production also influence the WTI prices. This can particularly be observed recently with the conflicts that have affected the producer countries in the Middle East, a situation that pushed the prices upwards due to the fear of a possible oil shortage in the West.