Brent drops after US crude’s rout: What’s the difference between oils
Oil prices in the US briefly dipped into negative territory, meaning that buyers were being paid up to $40.32 to take delivery of oil. On April 20, WTI May contract traded 306% lower to settle at -$37.63 a barrel, after going as low as -$40.32.Updated: Apr 21, 2020, 17:24 IST
Brent for June delivery dropped more than 20% to $19.82 per barrel, its lowest level in nearly two decades, as traders in Europe continued to react to the May West Texas Intermediate (WTI) contract going negative on Monday amid a slash in demand over the coronavirus pandemic.
Oil prices in the US briefly dipped into negative territory, meaning that buyers were being paid up to $40.32 to take delivery of oil. On April 20, WTI May contract traded 306% lower to settle at -$37.63 a barrel, after going as low as -$40.32.
Demand for oil has dried up as international economies shut down to slow the spread of Covid-19 pandemic. The shutdown, in turn, has meant that storage sites across the world have been filling up leading to a supply glut.
Here’s the difference between Brent and WTI:
* Brent North Sea Crude, commonly known as Brent crude, is the international benchmark price used by the Organisation of Petroleum Exporting Countries (OPEC) and WTI is the most commonly used US standard for oil. India imports primarily from OPEC countries so it considers Brent as the benchmark for oil prices.
* Most of the oil produced in Europe, Africa and the Middle East is priced according to the cost of Brent crude.
* Brent is the reference for about two-thirds of the oil traded around the world and is slightly more sensitive to geopolitical tensions.
* Brent crude is extracted from the North Sea and WTI is usually extracted from oil fields in Texas, Louisiana, and North Dakota in the United States.
* WTI, with a lower sulphur content at 0.24%, is considered “sweeter” than Brent at 0.37%. Both oils are relatively light but Brent has a slightly higher American Petroleum Institute (API) gravity, making WTI the lighter of the two. API gravity is an indicator of the density of crude oil or refined products.
* Both Brent and WTI are also less dense or “lighter” than many of the crude oils extracted elsewhere, making them easier to refine and more attractive to petroleum product producers.
* Brent futures are primarily traded on the Intercontinental Exchange (ICE) in London, and WTI is the underlying asset for oil futures on the New York Mercantile Exchange (NYMEX).
* Brent and WTI crude have different properties, which result in a price differential known as quality spread. They are also located in different parts of the world and is referred to as a location spread.
* The Chicago Mercantile Exchange (CME) Group, which runs the NYMEX commodities market, says the WTI and Brent spread is influenced by US crude oil production levels, crude oil supply and demand balance in the US, North Sea crude oil operations and geopolitical issues in the international crude oil market.
* Brent shipping is typically lower because it is produced near the sea and can be put on ships immediately. Shipping of WTI is higher since it is produced in landlocked areas like Cushing, Oklahoma where the storage facilities are limited.