Crude oil is one of the most prominent and in-demand commodities. There are mostly two major grades Brent Oil & WTI crude oil. Crude oil prices in the market are volatile in nature. The oil prices also represent the liquid nature and is an essential benchmark for the global economic dynamics. In the article, we will unveil ten facts that not only expand your knowledge but also be helpful in your trading experience.
- Brent crude or WTI crude
Brent Crude and WTI crude are the two major classifications of crude oil; Brent oil is drilled out of the North sea adjoining the United Kingdom and Norway, while crude oil is extracted in the united states. The region near Texas, North Dakota, and New Mexico is the primary source of WTI crude. The benchmark for the US crude is West Texas Intermediate (WTI).
- Brent is more popular than WTI
It is observed that approximately 60% of all the crude in the World is priced in terms of Brent Crude. WTI crude only consists of pricing of US and Canadian oil. Brent oil is deemed to be a better benchmark than WTI. It is also considered to be a more efficient representative.
- Heavy Oil vs Light Oil
Crude oil trading is also classified based on density. The American Petroleum Institute sets the standard of gravity, aka API gravity. The scale of API gravity is between 10-70 units. The oil with higher API gravity is denser.
- Brent oil is more efficient than WTI crude.
The US oils are landlocked and moved by rails, while the Brent Oil wells are from the sea region and moved by ships. Therefore, the US oil rates are comparatively inefficient compared to Brent oil. Brent Oil is more economical and reflects better oil prices.
- WTI is traded at a discount to Brent crude.
During 2011, Brent and WTI crude prices were almost similar. After 2011, the US emerged as a major player in oil. WTI crude secured its trade at a discount to the Brent crude. However, this discount is flexible.
- WTI oil once became negative, while Brent remained positive.
Once WTI crude price touched negative 37 dollars per barrel of crude oil. During Pandemic, the storage capacity of the refiners became full. Hence, traders dumped contracts even at a negative price. However, the Brent is settled through cash, and there is no mandatory contract for delivery.
- Total Global Production of oil is fulfilled by five countries.
The World’s daily oil production is 92.65 million barrels per day(bpd). The United States, Saudi Arabia, Russia, Iran (western region) and Canada produces nearly 46 million of the World’s 92 million barrel of production. The rest of the countries produce the other half. Factors such as geopolitical conditions, trade treaties and policies, import and export duties, and political uncertainties influence the price of crude oil.
However, the influence of these major five on the prices of Bent or WTI is minimum.
- Texas and North Dakota are the major oil producers.
United States, Texas and North Dakota combined produces more oil than Russia and Saudi Arabia. They produces almost 50 % of the total production in US.
The rising oil demand strengthens the economy of these regions. Texas is one of the most rapidly developed states because of its crude oil production.
Furthermore, the extraction or supply fluctuations in the Texas and North Dakota areas could impact the price of crude oil for trading.
- Factors the influence oil prices
According to the Dollar smile theory, a strong US dollar is inversely proportional to the effect on crude oil prices. The trends show that the value of the dollar tends to move in the opposite direction as oil.
Furthermore, crude oil is also correlated with the Canadian dollar. Trade experts have identified some techniques such as trend direction. These insights are helpful for oil market analysis. In the Canadian aspect, if the oil prices are high, then it is also favorable to the Canadian economy.
