Price difference between Brent crude oil and WTI crude oil
Mark rich is one of the most influential and controversial commodity traders in history. He once called oil blood flowing through the blood vessels of the world. Crude oil is the basic energy of the world economy. Crude oil price is not only one of the most active commodities, but also extremely sensitive to geopolitical and weather events.
In fact, the world crude oil market is investors' expectation of supply and demand, and oil prices fluctuate greatly, which is greatly influenced by consumers and investors' emotions. Therefore, global events such as the growing threat from novel coronavirus may cause shock waves in the whole market.
The report of the International Energy Agency (IEA) in April 2020 predicted that the global oil demand would drop to the level of 1995, all because of the prevalence of coronavirus pneumonia-19. According to the data of the World Health Organization, more than 100 countries reported the laboratory-confirmed cases of coronavirus pneumonia-19. The uncertainty of virus transmission shocked the financial market and caused a chain reaction in the whole economy.
Two most popular crude oils
As far as physical petroleum is concerned, there are different grades. The most popular trading grades are Brent North Sea crude oil (commonly known as Brent crude oil) and West Texas Intermediate crude oil (commonly known as WTI). Brent refers to the oil produced in Brent Oilfield and other places in the North Sea.
Brent crude oil price is the benchmark of crude oil in Africa, Europe and the Middle East. The pricing mechanism of Brent crude oil determines about two-thirds of the global crude oil production.
Petroleum contains sulfur, and the percentage of sulfur in crude oil determines the amount of processing needed to refine petroleum into energy products. "Low sulfur crude oil" refers to crude oil with sulfur content less than 1%.
The sulfur content of Brent crude oil and WTI crude oil is much lower than 1%, so they are both "low sulfur" crude oils. Their density is also lower ("lighter") than many crude oils produced elsewhere. These two characteristics make them easier to refine and more attractive to petroleum product producers.
Benchmark and trading market
WTI crude oil is the benchmark crude oil in North America.
The New York Mercantile Exchange branch of the Chicago Mercantile Exchange lists the futures contracts of WTI crude oil. WTI crude oil futures are delivered in Cushing, Oklahoma.
Brent crude oil futures are traded on the Intercontinental Exchange (ICE). Because Brent crude oil is an international trade, the delivery place will vary from country to country.
Since both oils are used as benchmarks, different countries will use them in different ways. Asian countries tend to use the mixed benchmark price of Brent crude oil and world crude oil index to evaluate the value of their crude oil.
Factors affecting benchmark pricing
Brent crude oil and WTI crude oil have different properties, which leads to a price difference called quality difference. They are also distributed all over the world (Brent in Europe and WTI in North America). This is called location distribution.
The nominal price of crude oil is only one factor to understand the crude oil market.
The New York Mercantile Exchange's Chicago Mercantile Exchange Group said that the spread of WTI/ Brent crude oil is affected by four key factors:
American crude oil production level
Supply and demand balance of crude oil in the United States.
Beihai crude oil operation
Geopolitical issues in the international crude oil market
How do world events affect crude oil prices
Political changes, weather events and global health crisis are some of the biggest impacts on the oil market.
Due to the outbreak of coronavirus, the International Energy Agency (IEA) lowered its forecast of global oil demand in March 2020, and it is expected that the demand will decline for the first time since 2009. In its April 2020 report 6, the International Energy Agency indicated that demand may still decline by June 2020. seven
To understand how world events led to long-term sharp fluctuations in the price difference between Brent crude oil and West Texas crude oil, please review a few years. 20 1 1 At the beginning of the year, the Brent-West Texas crude oil futures spread was almost flat.
Crude oil price per barrel: 1987-2020
During the period of 20 1 1, the spread widened and the price of Brent crude oil was higher than WTI. 20 1 1 February, the Arab Spring (uprising in most parts of the Arab region) broke out in Egypt. During this period, the spread of the Arab Spring expanded.
Brent crude oil has become more expensive than WTI because of concerns about the closure and insufficient supply of Suez Canal. As the tension in canal operation has eased, the diffusion has decreased.
Then, at the end of 20 1 1, the Iranian government threatened to close the the Strait of Hormuz, and about 20% of the world's oil flows through the Strait of Hormuz every day. As Brent crude oil price soared to $25 per barrel, higher than WTI.9, the spread widened again.
There are two reasons why the premium of 20 15 Brent crude oil decreased. First, an agreement was reached with Iran to allow Iran to export more oil, which should have increased the amount of Iranian crude oil flowing into the market every day. Because Brent was the pricing benchmark of Iranian crude oil, it depressed the price of Brent at that time.
Secondly, the number of drilling platforms in the United States declined almost simultaneously. Moreover, with the increasing overseas support for American crude oil exports, it means that drilling activities will be reduced in the future, and the daily output of the United States will also be reduced.
Therefore, the price of Brent crude oil is lower due to the increase of Iranian crude oil, while WTI is stronger due to the decrease of US production and the increase of exports. It must be noted that the expected inflow of oil into the market is enough to cause price fluctuations.
The weather will also have a great influence on the price. Us energy information administration attributed the hurricane in 2005 to the sharp rise in oil prices, because refineries and production stopped during weather events.
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