WTI oil and how to analyze its price

Among the types of crude oils that you can trade online or on which you can invest in the stock market more generally, we find WTI or West Texas Intermediate oil. This oil, which is one of the benchmarks in the field, is also a particularly volatile asset that it can be interesting to analyse. But before you start, it is necessary to know this asset well and to know its main characteristics. In this article, we therefore suggest that you learn more about WTI oil and get some tips for making good price analyzes.  

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Latest news

Crude Oil Declines after Saudi Arabia Decision

08/09/2020 - 10h30

Find out how the announcement of the drop in Saudi oil prices to Asia and the current economic environment once again pushed oil prices down early this week.

Analysis N°1

First of all, we can follow carefully the publications concerning the American oil stocks. This publication takes place every week and makes it possible to know whether the supply is large or not and whether the markets have anticipated American production of black gold well.

Analysis N°2

We will of course also follow with the greatest interest the geopolitical news of the oil producing countries and not only of the United States. The price of WTI can be influenced by a drop in production in Europe, Russia or in one of the OPEC countries following a conflict in certain sensitive areas. This drop in production will indeed reduce world supply and lead, in most cases, to an increase in the price of WTI oil as well as other reference oils.

Analysis N°3

The level of growth of the world economy will also be a determining factor in understanding the evolution of the price of WTI. In fact, most of the oil produced in the world is consumed by industry. Also, when the industrial sector is doing well, demand for oil is higher and vice versa during a recession.

Analysis N°4

Oil being also an energy raw material above all, we will also closely follow the development of renewable energies which are taking more and more market share due to drastic changes in legislation.

Analysis N°5

Finally, given that WTI crude oil is quoted in dollars, we will follow the evolution of this currency against other currencies in the Forex market. A weak US dollar will indeed push investors to buy oil more than a strong dollar. This will generally lead to an increase in WTI prices.

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What is WTI oil and what are its main characteristics?

First, we suggest you learn a little more about WTI oil and its main characteristics with a slightly more complete presentation of this raw material.

The WTI which here means West Texas Intermediate, is also known as Texas Light Sweet as you will see in some online brokers. This term therefore designates a type of crude oil which is among the few reference oils at international level. The WTI is a so-called standard value that economists use to determine the price of other types of oil as a raw material and on the exchange markets for the establishment of futures contracts. There are of course other reference oils, the best known of which is North Sea Brent and which serves as a standard for the oil traded in Europe.

WTI oil is listed on the New York Mercantile Exchange, that is to say on the main financial center devoted to raw materials in the world. Note that, as the name suggests, West Texas Intermediate is produced in Texas and therefore in the USA.

With regard to the detailed characteristics of the WTI, we can notably speak here of one of its specificities which concerns its lightness in comparison with the Brent oil which is heavier. We are talking about lightness as a quality of oil, which also explains the slight difference in price between these two standards. Another of its physical peculiarities concerns its low sulfur content of only 0.24%, which allows it to be considered as a sweet oil. It will thus be noted that the API density of WTI oil is here 39.6 and that its specific density is approximately 0.827.

Being produced in the United States, it is also directly in this country that WTI is most often refined. American crude oil refineries are found mainly in the Midwest and near the Gulf Coast, that is, in the immediate vicinity of the black gold production and extraction sites on American soil.


The differences between WTI oil and Brent oil:

When you register on a trading platform in order to speculate on stock market oil, you will be offered two types of reference oil, namely WTI oil and Brent oil from North Met. In order to choose the best asset, here are explanations of the main differences between these two black golds.

First of all, there is of course a major difference between these two oils with regard to their places of extraction. Brent is extracted from the North Sea, making it the benchmark oil in most European markets. Regarding WTI oil, it is produced in Texas and is mainly used as a reference on the American market. However, it will also be noted that the WTI has a relatively significant weight on the quotation of other barrels of crude because of its trading volumes at least as large as those of Brent.

Another difference between these two types of oil concerns their refining. When the oil is extracted, it is then refined before being put into barrels. However, WTI oil is considered to be of better quality than Brent oil because it contains only 0.24% of sulfur against 0.37% for its European counterpart. Thanks to this low sulfur content, WTI is transformed into gasoline on the American East Coast then transported throughout the country to be consumed while Brent will rather be used in the manufacture of gasoline and distillates like kerosene and diesel.

Still regarding the major differences between these two types of oil, it should be noted that WTI is less present internationally since it is mainly sold in the United States. Thus, Brent oil will have a stronger international presence and influence the price of more than two thirds of world production. However, we know according to recent reports published by the IEA or the International Energy Agency, that the United States is poised to become, in the next ten years, the world's largest producer of oil, which will of course increase the weight of WTI on the world oil market.

Of course, there is also a price difference between the barrel of WTI and that of Brent. Although the barrels of these two oils have the same capacity, the price difference observed is mainly due to the fact that the rate of suffering and therefore the quality of these two crudes is different. US oil stocks will also have an influence on the price of WTI oil because the larger these stocks are, the more supply is considered to be stronger than demand, which leads to a drop in the price of WTI and vice versa.

Finally, the last notable difference between WTI oil and Brent oil concerns the financial centers on which these two raw materials are traded. Indeed, and as we have just seen, it is on the NYMEX or New York Mercantile Exchange that WTI oil is traded. This financial center that manages futures contracts on this oil belongs to the Chicago Mercantile Group or CME. These forward contracts are then deliverable to Cushing, Oklahoma, which is a transshipment location with pipelines and storage facilities allowing refiners and suppliers easy access. As for the Brent oil futures, they are traded on the ICE or Intercontinental Exchange in London in the United Kingdom.


Where and how to invest in WTI oil prices:

First of all, know that it is possible to invest in this asset directly online thanks to CFDs. CFDs are contracts for difference that allow you, in fact, without having to physically buy barrels of oil, to speculate on the rise or fall in the price of a barrel of WTI or even Brent. To do this, you just have to take a position one way or the other on the asset of your choice. The resulting gain or loss will correspond here to the price difference between the time of your position and that of its closing.

There are thus several major advantages of going through a CFD trading platform to speculate on the price of the WTI. First, these platforms provide you with many tools that will help you make a good analysis of its course. You will find, for example, complete and customizable graphics, but also real-time financial information and analyzes carried out by professionals in this sector. You can also use certain strategic tools such as automatic orders or social or automatic trading.

Another solution for speculating on the WTI is to buy stocks of companies whose activities depend on this raw material such as oil companies or American refiners. Of course, here you will also have to pay attention to other elements in your analyzes of these values such as the financial results of these companies and their significant news in general. Finally, it should be noted that these stocks can also be traded online on the same trading platforms as for crude oil and through CFD contracts.

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Trade WTI now!
76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.