West Texas Intermediate, often abbreviated as WTI, is a high-quality grade of crude oil that is commonly used as a benchmark for oil prices. It is widely used in United States refineries because of its domestic origin and its composition, which makes it suitable for refinement into gasoline. It is classified as a light, sweet crude, and it requires less processing than heavier oils to comply with environmental standards when burned as fuel.
The sulfur content of WTI is 0.24 percent, well below the maximum of 0.5 percent that allows an oil to be classified as sweet. The degree of lightness of an oil is measured by the American Petroleum Institute (API) gravity system. A higher number indicates a lower-density, or lighter, oil. Light oils must have an API gravity of at least 38 degrees, and West Texas Intermediate’s is 39.6 degrees.
Brent Blend, a mixture of oil from 15 fields in the North Sea, is frequently compared to WTI. It is also a light, sweet crude, although its sulfur content is higher, at 0.37 percent, and it is heavier, with an API gravity of 38.3 degrees. Brent prices are usually $1 to $2 US Dollars (USD) per barrel below West Texas Intermediate prices, and they are used as a benchmark in European markets.
The New York Mercantile Exchange, or NYMEX, uses West Texas Intermediate prices as the basis for oil futures. Its benchmark status comes from the responsiveness of its price to the condition of the global oil market. The widespread use of WTI in the United States cemented it as the benchmark in the domestic market. International entities adopted it in recognition of the importance of NYMEX, and it became a global benchmark.
In 2010, some investors began to doubt the suitability of WTI as a global oil benchmark and suggested that Brent be used instead. They argued that the worldwide demand for heavier oils decreased the importance of light, sweet crude in the global market. Additionally, WTI prices began to exhibit increased volatility relative to other grades of crude oil, which made oil futures more expensive to hedge. Saudi Arabian Oil Company stopped using it to price oil deliveries in January 2010, and Aramco started pricing deliveries with the Argus Sour Crude Index, which is based on three grades of crude oil from the Gulf of Mexico. In the fall of that year, NYMEX officials announced their intention to continue using the West Texas Intermediate benchmark because they felt it still reflected the global market, while maintaining a higher trading volume than Brent.