I've been asked lately with Brent crude prices rising over $100/bbl and WTI crude staying near $90 what the differences are. Many times, there are price differences between different types of oil as well, as some oils are more desirable than others. We'll cover that as well.

For an answer to this popular question, I'll turn it over to an FAQ provided by the U.S. Energy Information Administration. Ready to learn? Here you go!

According to The International Crude Oil Market Handbook, 2004, published by the Energy Intelligence Group, there are about 161 different internationally traded crude oils. They vary in terms of characteristics, quality, and market penetration. Two crude oils which are either traded themselves or whose prices are reflected in other types of crude oil include West Texas Intermediate and Brent. Comparing these two crude oils with EIA's Imported Refiner Acquisition Cost (IRAC), the OPEC Basket, and NYMEX futures is important to understand the differences among the various types of crude oil that are often referred to in the press and by analysts. Generally, differences in the prices of these various crude oils are related to quality differences, but other factors can also influence the price relationships between each other.

West Texas Intermediate
West Texas Intermediate (WTI) crude oil is of very high quality and is excellent for refining a larger portion of gasoline. Its API gravity is 39.6 degrees (making it a “light” crude oil), and it contains only about 0.24 percent of sulfur (making a “sweet” crude oil). This combination of characteristics, combined with its location, makes it an ideal crude oil to be refined in the United States, the largest gasoline consuming country in the world. Most WTI crude oil gets refined in the Midwest region of the country, with some more refined within the Gulf Coast region. Although the production of WTI crude oil is on the decline, it still is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5 to $6 per-barrel premium to the OPEC Basket price and about $1 to $2 per-barrel premium to Brent, although on a daily basis the pricing relationships between these can vary greatly.

Brent
Brent Blend is actually a combination of crude oil from 15 different oil fields in the Brent and Ninian systems located in the North Sea. Its API gravity is 38.3 degrees (making it a “light” crude oil, but not quite as “light” as WTI), while it contains about 0.37 percent of sulfur (making it a “sweet” crude oil, but again slightly less “sweet” than WTI). Brent blend is ideal for making gasoline and middle distillates, both of which are consumed in large quantities in Northwest Europe, where Brent blend crude oil is typically refined. However, if the arbitrage between Brent and other crude oils, including WTI, is favorable for export, Brent has been known to be refined in the United States (typically the East Coast or the Gulf Coast) or the Mediterranean region. Brent blend, like WTI, production is also on the decline, but it remains the major benchmark for other crude oils in Europe or Africa. For example, prices for other crude oils in these two continents are often priced as a differential to Brent, i.e., Brent minus $0.50. Brent blend is generally priced at about a $4 per-barrel premium to the OPEC Basket price or about a $1 to $2 per-barrel discount to WTI, although on a daily basis the pricing relationships can vary greatly.

NYMEX Futures
The NYMEX futures price for crude oil, which is reported in almost every major newspaper in the United States, represents (on a per-barrel basis) the market-determined value of a futures contract to either buy or sell 1,000 barrels of WTI or some other light, sweet crude oil at a specified time. Relatively few NYMEX crude oil contracts are actually executed for physical delivery. The NYMEX market, however, provides important price information to buyers and sellers of crude oil in the United States (and around the world), making WTI the benchmark for many different crude oils, especially in the Americas. Typically, the NYMEX futures prices tracks within pennies of the WTI spot price described above, although since the NYMEX futures contract for a given month expires 3 days before WTI spot trading for the same month ceases, there may be a few days in which the difference between the NYMEX futures price and the WTI spot price widens noticeably.