What Is West Texas Intermediate (WTI)?

West Texas Intermediate (WTI) crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. WTI is known as a light sweet oil because it contains less than 0.50% sulfur (normally about 0.24% to 0.34%), making it "sweet," and has a low density making it "light."

WTI is the underlying commodity of the New York Mercantile Exchange's (NYMEX) oil futures contract and is considered a high-quality oil that is easily refined.

Understanding West Texas Intermediate (WTI)

WTI is the main oil benchmark for North America as it is sourced from the United States, primarily from the Permian Basin. The oil comes mainly from Texas. It then travels through pipelines where it is refined in the Midwest and the Gulf of Mexico. The main delivery point for physical exchange and price settlement for WTI is Cushing, Oklahoma.

The Cushing hub delivery system consists of 35 (20 inbound and 15 outbound) pipelines and 16 storage terminals. The hub has 90 million barrels of storage capacity and accounts for 13% of U.S. oil storage. The inbound and outbound capacity is 6.5 million barrels a day. Cushing is known as "The Pipeline Crossroads of the World."

West Texas Intermediate as an Oil Market 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. Though Brent crude and WTI crude are the most popular benchmarks, their prices are often contrasted. The difference in price between Brent and WTI is called the Brent-WTI spread.

WTI is not the most commonly used benchmark globally, that honor goes to Brent, where two-thirds of oil contracts globally use Brent as a benchmark. Both, however, are considered high-quality oils and are therefore the two most important oil benchmarks in the world. As mentioned, WTI has a sulfur content between 0.24% and 0.34%, whereas Brent has a sulfur content between 0.35% to 0.40%. The lower the sulfur content of an oil, the easier it is to refine, making it more attractive. A sulfur content below 0.5% is considered sweet. Both benchmark oils are considered sweet, but WTI is sweeter making it a bit easier to refine.

Theoretically, WTI crude should trade at a premium to Brent crude, given the quality, 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.

Since the shale boom in the U.S., which resulted in a production increase of WTI, the price of WTI has gone down and usually trades at a discount to Brent. Brent is also tied to more worldwide oil markets and serves as an international benchmark, meaning that more factors are influencing its price. Furthermore, 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.