Oil Benchmarks

WTI crude oil is important because it is an oil benchmark. The significance of a benchmark in the oil market is that benchmarks serve as a reference price for buyers and sellers of crude oil. Oil benchmarks are frequently quoted in the media as the price of oil. Although there are many different varieties of crude oil, there are three primary benchmarks: WTI, North Sea Brent crude, often referred to simply as Brent crude, and Dubai crude. Brent crude and WTI crude are the most popular benchmarks, and their prices are often contrasted. The difference in price between Brent and WTI is called the Brent-WTI spread. Theoretically, WTI crude should trade at a premium to Brent crude, but this is not always the case. While the two crude oil varieties can trade at similar price points, each one has its own unique supply and demand market, and therefore its price reflects its individual market fundamentals.

Market

WTI crude oil is produced in America and is actually a blend of several U.S. domestic streams of light sweet crude oils. It is produced in different areas of the United States and refined mostly in the Midwest and Gulf Coast regions. The major trading hub for WTI is Cushing, Oklahoma. Cushing is the delivery point for crude contracts, and it is the price settlement point for WTI. WTI crude oil flows into Cushing from all points of the United States and then flows outbound through pipelines.

Even though WTI is the highest-quality light sweet crude available, it is not the most used oil. That title goes to Brent crude. WTI’s market is primarily the United States. This is partially due to an export ban on U.S. crude oil, which was reversed in late 2015. Even though exports of WTI can now occur, transporting WTI overseas to Brent crude’s market could come at a cost that would make WTI unable to compete with Brent crude in terms of pricing.