Oil prices explained: Brent vs. WTI
How many of you are guilty of looking up the oil prices at any point this year? We at Lion Bulk Handling have looked up the prices not once or twice, but many times. Mainly because part of our business have a direct correlation with the oil price. Sometimes we check the oil prices out of curiosity and sometimes we were hoping that the price would be magically above $100/barrel. But let’s be more realistic…we were even hoping for the price to reach above $70/barrel! Obviously, at least for the last past years, our wishful thinking never came to be true. But in the last couple of months the prices are getting better. However, we do not want to blog about the low prices of the last years. When you look up the price of oil, you usually run into two different pricings: Brent and WTI.
So what is Brent and WTI and what is the difference between the two? These are pricing benchmarks for crude oil. There are really dozens of different benchmarks but Brent and WTI are just two of the most widely used. You see, there are different types of crude oil and some are more desired than others. Depending on the type of oil, the location it comes from, and what it is being used for is what determines which contract the buyers purchase.
Brent refers to crude oil from four different oilfields in the North Sea: Brent, Forties, Oseberg, and Ekofisk. Out of all the crude contracts around the world, about two-thirds of them use Brent as a pricing benchmark. This makes Brent the most widely used marker. The oil extracted from Brent is usually light and sweet which makes it very easy to refine into diesel fuel, gasoline, and other products. The oil supply is also water-Bourne which makes it easy to transport to distant locations. It makes sense why Brent holds two-thirds of the contracts!
WTI or West Texas Intermediate, is pretty important in my neck of the woods. Why? Well because WTI refers to the crude oil that is extracted in the United States and travels by pipeline to the hub in Cushing, Oklahoma. The oil from WTI is a lot like Brent in the sense that the oil is light and sweet. This makes it ideal for gasoline refinement in particular. Although the quality of oil is very similar between WTI and Brent, WTI is more limited to contracts inside of the U.S. because suppliers are land-locked. This makes shipping this oil across the globe pretty expensive.
Prior to 2011, the price between Brent and WTI remained very similar. So why the change in 2011? Just simply take a look back on the United States history when it comes to drilling for oil. Due to the use of new drilling technology, increase of supply, and increased infrastructure, the WTI price has stayed slightly lower than the Brent price.
Lion Bulk handling delivers dry material and fluid management solutions for the oil & gas industry and in perticular for drilling rigs and offshore supply vessels. Check our complete portfolio for offshore applications on www.lionbulkhandling.com – applications.