Brent vs WTI crude oil price

Whenever we check for crude oil prices, we notice one thing that Brent crude oil prices are generally higher than WTI crude oil Prices.What is the reason for this Brent WTI price spread?

Brent refers to the oil produced from the North sea and has a sulphur content of 0.37% while WTI is mainly produced in North america and it is delivered at cushing, okhalama(U.S.A) where its prices are set and has a sulphur content of 0.24%. And remember Lower the sulphur content cheaper it is to refine the crude oil. WTI is sweeter than Brent crude that’s why WTI is considered superior to Brent crude, but still is priced lower than Brent crude

Brent vs WTI spread

From the graph we can see that before 2010, WTI was priced higher than Brent which was normal as it is easier to refine WTI. But after 2010 Brent became costlier than WTI showing that U.S was no longer the driver for crude demand

The delivery point for WTI, Cushing, is land locked and transportation constrained. Around 2010 there were huge inventories of WTI at cushing due to increase in U.S production and limited transportation capacity, So the seller who could not find a way to transport their oil were forced to sell in Cushing at a discount.

At the same time there were uncertainties about the global supplies of crude due to the agitation and unrest in Middle east and North Africa region, which gave support to Brent and WTI crude prices.But due to the landlocked feature of Cushing and increasing production of U.S, WTI could not take the full advantage and was trading at discount. Whereas Brent which was readily available was gaining momentum and started selling at a premium to WTI.

Since than this gap between Brent and WTI crude prices has widened and was maximum at 30 $/bbl around September 2011.But after 2013 there were several factors which favored WTI price and reduced the spread between the prices.

  1. Expansion of crude transportation infrastructure increased refinery access to domestically produced WTI. Pipeline capacity to transport crude to and from cushing were increased and even rail projects were completed for transportation.
  2. Crude intake of U.S refineries were also increased which further favored WTI prices.
Since 2013 spread between Brent and WTI crude is decreasing and is now stable around 2-3 $/bbl.

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