In-depth: Brent and WTI crude oil. What makes price difference

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In-depth: Brent and WTI crude oil. What makes price difference

Federica Agostini | 9 November 2012

Crude oil, or Petroleum (from latin Petroleum, meaning rock oil) is a natural flamable liquid consisting of the mixture of some hydrocarbons. Being part of everyday human life, crude oil market tends to impact on worldwide economy.

Something more about oil market

In markets, crude oil is sold at BARREL and exchanged in futures. Due to particular political interest in oil market, it is very difficult to close describe market’s dynamics for bid and ask. Anyway, we can say most traded oil are the so called BRENT and WTI that are benchmarks in oil pricing worldwide.
Major exchange in oil market comes from New York Mercantile Exchange (NYMEX) and London International Petroleum Exchange.

BRENT and WTI: main differences

Both BRENT and WTI are classified as "sweet light crude oil" due to their chemical characteristics.

- West Texas Intermediate (WTI), also know as "Texas light sweet" is considered NYMEX benchmark.

- While BRENT crude oil is exchanged at London-based market, in turn being benchmark for crude oil market worldwide. Brent is a mixture of different of crude (comprising Oseberg, Forties Blend, Ekofisk and Brent Blend).

What makes price difference

Excepting from different prices due to different market, there are three major facts influencing prices:

1. WTI is generally considered more valuable due to high API gravity (measuring how crude oil is liquid compared to water) and lower sulfur.

2. Brent price is thus influenced from costs of carry, while WTI is transfered by oil pipeline.

3. Finally, what contributes to "make price" is ASK, from refinery and Asiatic countries.

And the more expensive is...

Even if WTI is more chemically "precious", it’s BRENT making much gains. Starting from 2010, BRENT grew from $71 to $100 per barrel and still sometimes it reaches high above the 100 line.

Why BRENT should cost more than WTI? The answer is: because of Asiatic markets. Emerging economies, even if pressured by some slowdown, are more lively-like than Western ones. So, what finally makes price differences between BRENT and WTI is the ask from new, growing, Asiatic economies.