What is WTI?
Crude oil is a valuable resource that influences many aspects of our daily lives and drives the global economy. The Western Texas Intermediate (WTI) oil standard, a key one in the oil market, is explored in this article.
We’ll discuss its importance, characteristics, reasons for functioning as a benchmark, trading methods, prospective investment opportunities, and more. You will gain basic knowledge about WTI crude oil as a financial instrument.
Explain WTI.
“WTI” refers to a particular grade of crude oil extracted from the Permian Basin in central Texas, in the United States. It is also known as Texas light sweet crude.
In addition to Brent Crude and Dubai/Oman Crude, it is a worldwide benchmark for oil. It is the underlying asset for the WTI futures contracts traded on the NYMEX. Only physical delivery is permitted for contract settlement.
Key Elements
Critical characteristics of WTI crude oil make it desirable on the market. It has an API gravity of 39.6 and a sulfur content between 0.24% and 0.34%. So, it is regarded as sweet and light. These characteristics make WTI easy to refine.
Pipelines transport WTI crude produced in Texas to refineries and oil reservoirs in the Midwest and the Gulf of Mexico. Brent is of worse quality than WTI. Brent, however, is the preferred benchmark for settling around two-thirds of all contracts because of its geographic isolation and supply and demand patterns.
Brent Crude, extracted in the North Sea, is more expensive than WTI. WTI transportation is constrained because it is a landlocked commodity. However, other factors also affect its price, including higher productivity.
The History of WTI
The massive amount of crude oil stored in large reservoirs and pipeline complexes in Cushing, Oklahoma, is where the name “West Texas Intermediate” originates. Thanks to this complex, which includes 35 pipelines (20 inbound and 15 outbound) and 16 storage terminals, Texas currently has the largest oil storage capacity in the nation. Because Texas is south of Oklahoma, the specific grade of crude oil is called West Texas Intermediate or WTI.
Also Read: What is Brent Crude?
Growth of the Physical WTI Market
The US government deregulated oil prices on January 28, 1981, which led to the formation of the physical WTI crude oil spot market. It once traded at spot prices that were categorized and controlled by laws governing oil pricing.
The physical market, based in key cities like Cushing, Oklahoma; Midland, Texas; and Houston, Texas, was where spot pricing for WTI was initially introduced. However, as the price of crude oil plunged in 1985–1986, futures markets grew increasingly common.
Why is WTI a Key Oil Benchmark?
WTI is a crucial oil benchmark, notably in North America, even though Brent dominates the global market for crude oil prices. The significant justifications for WTI’s status as a benchmark for oil are as follows:
High-Quality Crude
A preferred option for refiners, WTI stands out for its excellent quality, reduced sulfur level, and lighter density. Despite being more affordable than Brent, it is popular because of its ease of refinement and appropriateness for gasoline.
Higher Production
WTI output increased due to the American shale boom in the early 2000s. WTI crude prices were reduced due to the increase in supply, making it more competitive.
Based on Physical Trade, the WTI Index
WTI futures contracts, traded in lots of 1,000 US barrels or 42,000 US gallons, are based on real-world transactions. The fact that trade is transparent helps to make WTI a benchmark.
Export Possibilities
Despite being seen as “landlocked” because of the separation between production areas and ports, the US has developed business ties with other nations to export WTI oil. Significant WTI export markets include China, Canada, and Mexico.
Investment Opportunities
Recognizing WTI Futures
WTI light sweet crude oil futures contracts were introduced in 1983 by the New York Mercantile Exchange (NYMEX), with Cushing, Oklahoma, as the delivery point for price settlement and physical exchange. In response to the fluctuation in oil prices, this was done. WTI futures allow market participants to buy oil at a fixed price in anticipation of future delivery and monetary settlement.
The minimum tick size for the 1,000 US barrels or 42,000 US gallon NYMEX crude oil contract is $0.01 per barrel or $1 per contract. It is denoted by the sign “CL.” Prices are quoted in US dollars. The expanded use of a determined WTI physical spot price shows the degree of transparency futures contracts provide.
May 2020 WTI Negative Price
The WTI price for the May 2020 futures contracts hit a record low of -$37.63 per barrel (Buyers were paid to take delivery). This resulted from a fast sell-off by dealers who refused to accept physical delivery because they lacked storage space.
Because Brent crude more accurately represented the oil market because of this incident, it became a well-known benchmark.
The Relevance of the WTI Spot Market
The current WTI price is the foundation of the spot market. It takes into account WTI oil’s imminent delivery. It is a crucial benchmark for determining the cost of American crude oil. Supply and demand, production and shipping expenses, and market sentiment all impact the current price.
CFDs
Contracts for Difference (CFDs) based on WTI-based trading present a compelling alternative. With CFDs, traders may speculate on WTI’s future price without buying or selling it. USOIL is the symbol we use for WTI CFD.
Investors can profit from upward and downward price trends by comprehending and forecasting WTI oil price fluctuations. Even so, there are dangers associated if the market moves against you.
Why Is Accurate Market Data Important?
You must support your CFD trading decisions with a thorough market study while considering WTI oil price influencing elements. For an objective view of the CFD market, a trustworthy source of market data is essential.
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Also read the original blog on our website about WTI Crude.
