WTI vs. Brent Crude: Battle of the Oil Benchmarks

Oil is just oil, right?

I can’t tell you how many times I hear that in any given day, and my answer is always the same…

Not even close.

Travel from one field to another, and there’s a good chance you’ll find a huge difference in the quality of crude oil that’s extracted.

That creates a need for crude oil benchmarks, and it’s these benchmarks that are used by buyers and sellers across the world as a reference for what price to pay.

Makes sense, doesn’t it?

And with dozens of different benchmarks available for sale, it’s not easy for everyday investors to keep track of them all… or necessary, for that matter.

So, what exactly are the global benchmarks we use today? More importantly, which crude oil grades should you pay attention to?

Let me show you two major ones to keep an eye on — believe me, it’ll come in handy during oil’s next super-cycle.

WTI vs. Brent: Battle of the Benchmarks

I have no doubt you’ve heard of the major benchmarks before today.

Yet I’m always surprised that most investors don’t take the time to learn the difference between them.

Just remember, not all crude oil was created equal.

There are actually a variety of factors that we use to differentiate between them, such as the API gravity (the measurement of an oil’s density relative to water).

Of course, you also have to consider how sweet or sour the crude is, which tells you how much sulfur it contains. “Sweeter” crudes have less sulfur, which makes them much easier to refine into products like gasoline or diesel, and thus much more attractive to refiners.

Here’s a look at how some of the world’s benchmarks stack up against each other:

In the U.S., for example, most of the oil refineries that are capable of producing heavy/sour crude are located in the Gulf Coast:

I have a feeling you’ve heard of a few of the major benchmarks.

West Texas Intermediate, or WTI, is perhaps the most famous. This is the light, sweet crude that flows out of Texas wells in the Permian Basin, and it is far more desirable than most, which is why buyers are willing to purchase it at a premium.

You see, WTI crude has an API gravity of 39.6 degrees and only contains approximately 0.24% sulfur (in order to be considered “sweet,” the oil has to have less than 0.5% sulfur).

We’ve talked about Permian Basin oil drillers many times in the past here, and that won’t change anytime soon.

Right now, more than 3 million barrels are extracted every day from West Texas oil fields.

There are only a handful of countries that can exceed that amount today.

In fact, if Texas were to join OPEC, it would be the oil cartel’s fifth-largest member.

And if you recall from last week, I showed you how one company drilling in the Permian Basin is outperforming the largest oil company on the planet!

Despite the high quality of West Texas Intermediate, WTI is currently trading at a $3.57/bbl discount to another major oil benchmark: Brent crude.

Brent crude is actually a blend of oil from more than a dozen oil fields located in the North Sea. Although considered both light and sweet, Brent is slightly heavier than WTI, with an API gravity of 38.06 and a sulfur content of 0.37%.

During the latter half of 2017, the price spread between Brent and WTI reached as high as $8 per barrel.

That spread is about to get much thinner, too… and it’s all thanks to increasing exports out of the United States.

Remember, it wasn’t until a few years ago that Congress lifted a 40-year ban on U.S. oil exports.

So, it was only recently that U.S. companies were able to tap into rising global demand.

As you can see below, U.S. companies are ramping up exports. Between January and November last year, the amount of crude being exported out of the U.S. more than doubled to 1.5 million barrels per day.

And this is just the beginning.

To say U.S. oil production is booming would be a gross understatement.

Within the next two years, we’re expected to once again become the world’s largest oil producer, with output projected to surpass 11 million barrels per day in 2018, then climb even higher in 2019.

Don’t expect exports to slow anytime soon.

Of course, tightening global supply will ensure that there will be demand for the light, sweet Texas tea.

I fully expect crude prices to march higher throughout 2018.

This bullish cycle is just beginning.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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