Definition of WTI
- Western Texas Intermediate is an international benchmark of one of the most popularly traded commodities in the world i.e. crude oil.
- Even though there are more than a hundred different kinds of crude oil available internationally, the main benchmark crude oil is the West Texas Intermediate (WTI), Brent Crude and Dubai Crude oil.
- WTI is the main commodity traded in oil futures contracts on the New York Mercantile Stock Exchange (NYMEX). It enjoys that confidence due to its high quality and the possibility of easy refinement of the crude.
- The main source for this crude is inland Texas. The main delivery point for physical exchange and price settlement of the WTI is Cushing in Oklahoma, which is popularly known as the “Pipeline Crossroads of the World”.
Pricing of WTI
- The pricing of crude oil is done on three basic parameters namely, the specific gravity or the API, the Sulphur content and the location of the crude oil. It also depends on the suppliers and the partnerships that they are involved in.
- WTI Benchmark is a lighter crude oil with lower API gravity and is sweeter due to low Sulphur content.
- The Sulphur content stands at a mere 0.34%.
- WTI is therefore ideal for gasoline.
- The pricing of WTI is often contrasted against Brent Crude oil and this is known as Brent-WTI spread.
- However, the price of WTI is lesser than Brent, though its quality is better. This is because of the markets it is traded on, the costs incurred in the transport of the oil, the supply dynamics of WTI in light of the shale gas boom in the USA etc.
Impact of Fluctuations in the Price of WTI
- Changes in the price of WTI will directly impact the cost of other fuels such as gasoline, natural gas etc.
- This in turn will impact the transportation sector, impacting the distribution of goods such as food products, essentials and even movement of people.
- This shortage of supply created will result in cost push inflation.
- The price of WTI will also influence the consumption levels of the same, impacting the environment.
