West Texas Intermediate (WTI) is one of the most widely recognized benchmark crude oil prices, primarily used in North America. It serves as a critical reference point for oil pricing, trading, and economic analysis. Understanding WTI is essential for traders involved in commodities, energy stocks, CFDs, futures, or even forex pairs influenced by oil price movements.

WTI crude oil is a light, sweet crude oil, meaning it has relatively low density and sulfur content. These qualities make it easier and cheaper to refine into products like gasoline and diesel compared to heavier, sour crude oils. WTI is primarily sourced from oil fields in the United States, especially Texas, Oklahoma, and surrounding states, with its delivery point at the Cushing, Oklahoma storage hub.

WTI’s importance lies in its role as a benchmark price. When traders or analysts talk about the “price of oil” in the U.S., they usually refer to WTI. It is traded on the New York Mercantile Exchange (NYMEX) under the symbol CL and quoted in U.S. dollars per barrel. Prices fluctuate based on supply and demand dynamics, geopolitical events, inventory reports, economic data, and broader market sentiment.

A common way traders use WTI prices is through futures contracts. These contracts obligate the buyer to purchase oil at a specified price on a future date. The price of a WTI futures contract reflects market expectations of future supply and demand. The formula for calculating the profit or loss on a futures contract can be expressed as:

Profit/Loss = (Sell Price – Buy Price) × Contract Size

For example, if a trader buys one WTI futures contract at $70 per barrel and later sells it at $75 per barrel, with a contract size of 1,000 barrels, the profit would be:

Profit = ($75 – $70) × 1,000 = $5,000

WTI prices also influence other trading instruments, such as oil-related stocks (e.g., ExxonMobil, Chevron), energy sector indices, and CFDs based on oil prices. Forex traders might monitor WTI as oil prices can impact currencies of oil-exporting or importing countries, such as the Canadian dollar (CAD) or the Russian ruble (RUB).

One common misconception is that WTI and Brent crude oil prices are interchangeable. While both are benchmarks, Brent is sourced from the North Sea and tends to reflect global oil market trends, whereas WTI is more regional. Historically, WTI traded at a premium to Brent due to its higher quality, but in recent years, price differentials have fluctuated due to logistical issues and regional supply-demand imbalances. Traders should be cautious when comparing or using these benchmarks interchangeably.

Another frequent mistake is ignoring the impact of storage and transportation infrastructure on WTI prices. For instance, the Cushing hub’s storage capacity can cause a temporary glut or shortage, significantly affecting prices. During the April 2020 oil crash, WTI futures prices briefly turned negative because storage capacity was overwhelmed, forcing sellers to pay buyers to take oil off their hands. This event highlighted how physical market constraints can influence paper trading instruments.

Related queries often include: “What is the difference between WTI and Brent crude?”, “How does WTI affect gasoline prices?”, and “Can you trade WTI crude oil CFDs?” Understanding these questions helps traders grasp the broader context of oil trading and how WTI fits into global energy markets.

In summary, West Texas Intermediate is a cornerstone benchmark in the North American oil market. Traders should understand its unique characteristics, regional influences, and how it differs from other crude benchmarks. Paying attention to storage, transportation, and geopolitical factors is crucial for avoiding pitfalls and making informed trading decisions involving WTI.