Brent crude oil vs WTI oil: what are the key differences?
Discover two of the most popular oil benchmarks in the world – Brent crude and West Texas Intermediate. Here, you’ll learn about the differences between them, and find out how to start trading oil.
What is Brent crude oil?
Brent crude oil is a blended oil (a mix of brent, forties, oseberg and ekofisk) drilled from below the North Sea. It is popularly refined into diesel fuel and gasoline. In trading, Brent is one of the benchmarks for oil in the wider market, such as the Middle East, Europe and Africa.
What is WTI oil?
WTI (West Texas Intermediate) oil – US crude with IG – is a blend of several oils drilled and processed in the United States. It is commonly used for gasoline refining. In the trading world, WTI is primarily a benchmark for the US oil market.
Brent crude vs WTI: five differences
Extraction location
| Brent crude | WTI | |
| Extraction | North Sea | Texas, Louisiana, North Dakota |
| Pipeline system | To Scotland | To Oklahoma |
| Refinery | Northwest Europe | The Midwest and Gulf of Mexico |
Because Brent is extracted at sea and not on land, there are certain advantages. Large volumes of oil can quickly and safely be transported in underwater pipelines. In the US, however, the production advantage lies in new extraction technologies, such as well stimulation techniques and horizontal drilling.
Composition
| Brent crude | WTI | |
| Sulphur content | 0.37% | 0.24% |
| API gravity | 38.0 | 39.6 |
When oil has a low sulphur content, it is known as ‘sweet’ oil. American Petroleum Institute (API) gravity refers to the density of the oil – measured on a scale from ten to 70. The higher the number, the less dense the oil. Light sweet oils flow more freely at room temperature, making them easier and cheaper to refine.
Geopolitical influences
The political state of oil producing countries has a significant impact on the commodity’s production and price. When it comes to crude oils such as Brent and WTI, traders should keep an eye on the political climate in the Organisation of the Petroleum Exporting Countries (OPEC) regions and the US. A huge political shift in North America, for example, would affect WTI more than Brent crude, and the spread between WTI and Brent would likely widen.
Trading exchange
| Brent crude | WTI |
| Intercontinental Exchange (ICE) | New York Mercantile Exchange (NYMEX) |
Oil is traded on exchanges, just like shares, but they are traded in the form of oil benchmarks. This enables traders to quickly identify the quality and drilling location of the oil they are buying and selling.
Pricing
Though there are some correlations in composition and usage, all crude oils are not priced equally. The difference between the spot price of Brent crude and WTI is called the Brent/WTI spread. Factors related to supply and demand, including production interruptions and geopolitical influences, can widen the spread.
An example of this would be the Arab Spring in 2011, which sparked fears of reduced Brent crude supply. The spot price reached $126.65 in April that year, while WTI was priced at $112.79.
Another example is the 2020 oil price war between Russia and Saudi Arabia, known as the OPEC crash. Brent crude plummeted to $33.36 (down by 24%) and US oil prices tumbled to $27.34 (down by around 34%). Soon after, the coronavirus pandemic sparked an oil storage crisis, which caused US crude to crash from $18.00 a barrel to -$38.00. This was the first time in history that the oil price fell to negative value.
Oil benchmarking and pricing
Oil benchmarks are important because it describes where the commodity comes from, which is an important factor in determining its use. Benchmarks also enable traders and investors to track the price of a specific oil type.
As mentioned earlier in the article, Brent crude is the benchmark used for the wider light oil market – ie Europe, Africa and the Middle East, while WTI is the benchmark for the US light oil market. Other countries often use both Brent and WTI as benchmarks to value their crude oil.
Benchmarks for the heavy sour crude oil market are Dubai crude and Omani crude.
How to trade Brent crude and WTI
There are different ways to trade Brent crude and WTI, depending on your preferences. One of the most common ways to buy and sell oil is via futures, but there are also other ways to get exposure to the commodity.
Futures
When you trade oil futures, you agree to trade the oil benchmark (in this case, Brent crude or WTI) at a specific price at a fixed date in the future. This method is preferred by traders with a longer-term view, as positions can be held without paying overnight funding charges. The charge is already included in the spread.
Options
With options, you have the right, but not the obligation, to buy or sell an underlying asset when its price moves beyond a certain limit within a set time period. You can buy and sell options using derivatives. IG offers daily, weekly, monthly and quarterly options, with benefits such as lower spreads, flexible leverage and zero overnight funding.
Discover options
CFDs and spread bets
You can go long or short on the spot price of Brent crude and WTI oil using derivatives, namely CFDs and spread bets. Derivatives enable you to open a position with a small deposit (margin) and speculate on rising or falling oil prices without ever owning the physical commodity.
When trading futures and options, you’ll also use CFDs or spread bets.
Shares
You can invest directly in oil company shares, such as BP or Royal Dutch Shell, and profit if the share price goes up. Investing also enables you to receive dividends, if the company pays them, and earn shareholder rights. You can also trade shares via spread bets and CFDs, enabling you to go long or short on underlying prices.
Discover shares
ETFs
Exchange traded funds (ETFs) are investment instruments that track the performance of a market, such as oil. They enable you to get exposure to a basket of oil stocks in a single trade. Find out which are the popular oil ETFs to watch.
Brent crude vs WTI summed up
- Brent crude oil is popularly used to refine into diesel fuel and gasoline. It’s one of the major benchmarks for oil in the Middle East, Europe and Africa
- WTI (West Texas Intermediate) oil is commonly used for gasoline refining. It’s primarily a benchmark for the US oil market
- Brent crude and WTI differ in terms of where it’s extracted, its composition, how it’s affected by geopolitics, where it’s traded and how it’s priced
- With IG, you can trade oil via futures, options and derivatives, or invest in oil company stocks and oil ETFs
Ready to get started? Open your IG account now for exposure to live oil markets, or try our risk-free demo.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Explore the markets with our free course
Discover the range of markets and learn how they work - with IG Academy's online course.
