Why is wti more expensive than brent

Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Both Brent Crude and West Texas Intermediate are light and sweet, making them ideal for refining into gasoline.

Brent Crude is more ubiquitous, and most oil is priced using Brent Crude as the benchmark, akin to two-thirds of all oil pricing. In contrast, West Texas Intermediate is produced in landlocked areas, making transportation costs more onerous. A surge of WTI production has led many traders to consider it an important pricing benchmark vs. Brent, if not even close to the total production of the latter.

The Organization of the Petroleum Exporting Countries OPEC controls most of the oil production and distribution, often dictating costs for not only oil suppliers but countries as well. It is also slightly "sweeter" and "lighter" than Brent. Offshore oil rigs, despite being in the news more often, most famously with the BP oil leak of , are heavily traded as barometers of domestic oil market health. There has been a trend, due to advancements in oil drilling and fracking, of West Texas Intermediate becoming cheaper than Brent Crude oil.

The price of oil is a major factor in the overall health of the energy sector and is one of the most heavily traded commodities as it is influenced by almost every global, macro event. Another factor that can lead to significant differences between Brent Crude and West Texas Intermediate is geopolitical trouble. West Texas Intermediate is less affected because it is based in landlocked areas in the United States. Energy Information Administration. Organization of the Petroleum Exporting Countries.

Oil is also getting a boost amid the eye-popping rally in natural gas prices, which could prompt utilities to switch from gas to oil. Enjoyed this article? Skip Navigation. VIDEO Energy surges as global demand picks up and analyst Paul Sankey breaks down the move. Brent and WTI crude have different properties, which result in a price differential called a "quality spread. This is referred to as a "location spread. The nominal price of crude oil is just one factor involved in understanding the crude oil market.

Political shifts, weather events, and global health crises have been some of the biggest shock factors in the oil market. Because of the coronavirus outbreak, the International Energy Agency cut its forecast for global oil demand in March , predicting the first year-over-year decline in demand since To understand how world events can cause the spread between Brent and WTI to move dramatically for long periods, look back a few years.

At the start of , the Brent-WTI spread was close to flat. The spread widened during , with Brent trading at a premium compared to WTI.

Around the time that the Arab Spring an uprising across much of the Arabic region began in Egypt in February of , the spread widened. Fears concerning the closure of the Suez Canal and a lack of available supply caused Brent crude oil to become more expensive than WTI. As tensions eased over the canal's operation, the spread reduced.

In , a premium drop for Brent occurred for two reasons. First, an agreement with Iran was struck, allowing the country to export more oil, which should have increased the amount of Iranian crude flowing into the market on a daily basis.

Since Brent is the pricing benchmark for Iranian crude, this development depressed the price of Brent at the time. Second, U. With expanding support for exporting U.

It is important to notice that mere anticipation of an influx of oil into the market was enough to cause price fluctuations. Weather, too, can have drastic effects on prices. In , hurricanes led to sharp rises in oil prices, as refineries and production facilities shut down for the duration of the weather events. Each contract is worth 1, barrels of Brent crude oil. It is traded in U. Brent crude is refined all over the world by the refineries that purchase the barrels of crude oil.

However, since it is drilled in Northwest Europe, most of the oil is refined nearby in that region. Oil refining in the U.

Each barrel contains 42 gallons of crude oil. Energy Information Administration. CME Group.