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West Texas Intermediate AI simulator
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West Texas Intermediate
West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX). The WTI oil grade is also known as Texas light sweet. Oil produced from any location can be considered WTI if the oil meets the required qualifications. Spot and futures prices of WTI are used as a benchmark in oil pricing. This grade is described as light crude oil because of its low density and sweet because of its low sulfur content.
The price of WTI is often included in news reports on oil prices, alongside the price of Brent crude from the North Sea. Other important oil markers include the Dubai crude, Oman crude, Urals oil, and the OPEC reference basket. WTI is lighter and sweeter, containing less sulfur than Brent, and considerably lighter and sweeter than Dubai or Oman.
Unlike Brent crude, WTI crude oil is not from any specific oil fields. Rather, WTI is described (for example by the Alberta Government) as "light sweet oil traded and delivered at Cushing, Oklahoma" (with WTI Midland and WTI Houston crude oil defined similarly for Midland, Texas, and Houston, Texas respectively). Historically,[when?] local trade between oilfield production and refineries around Midland, Texas, and Cushing, Oklahoma, could be said[by whom?] to define WTI oil, but as local production declined, pipelines into those areas began to deliver crude oil of other grades, produced and blended elsewhere, which were also accepted as WTI. The WTI futures contract formalized this relationship by specifying that the deliverable asset for the contract could be a blend of crude oil, as long as it was of acceptable lightness and sweetness. Crude oil lightness is characterized by oil gravity, and crude oil sweetness by sulfur content. Measurements of lightness and sweetness of WTI changes depending on the particular light and sweet oil traded at Cushing at the time of the measurement, and even the particular measurement methodology.
The Platts and Argus API and sulfur measurements are descriptions of WTI as assessed, while the NYMEX WTI futures contract characterization is a requirement for WTI crude oil delivery to the contract. WTI crude oil will typically satisfy the WTI futures contract requirements and be close to the Platts and Argus assessed values at the time.
The US governmental decontrol of oil prices on January 28, 1981, marked the beginning of the physical WTI Crude Oil spot market. Under the previous US Emergency Petroleum Allocation Act of 1973, WTI crude oil traded under a variety of spot prices split into various categories set by the price controls. After the price decontrol, WTI graded crude oil traded under spot prices centered around spot prices at Cushing, Oklahoma; Midland, Texas; and Houston, Texas (specifically at the Magellan East Houston "MEH" Terminal). Oil price collapses during 1985-1986 significantly reduced local oil production around Cushing, and linked Gulf Coast imported crude oil supplies into the Cushing region and the WTI market. The growth of the WTI spot market came in tandem with the growth of the WTI futures market. The volatility of WTI spot prices lead to the development of WTI futures contracts, while the adoption of the WTI futures contracts as hedging tools by producers and refiners worldwide lead to the worldwide adoption of assessed physical WTI spot prices as benchmark prices for crude.
Price Reporting Agencies (PRAs), such as Platts and Argus Media, compiled assessment prices of WTI based on prices of spot transactions starting in 1981. Eligible spot transaction prices at Cushing, Oklahoma, is typically reported as WTI, while eligible spot transactions at Midland, Texas, and Houston, Texas (at the MEH Terminal) are reported as WTI Midland, and WTI Houston respectively. The development of WTI spot and futures markets led crude oil producers around the world to use assessed WTI prices as a benchmark in oil pricing. For example, in 2008, Saudi Arabia, Kuwait, Iraq, Colombia, and Ecuador based their crude oil selling prices on either the Platts WTI Mnth 1 index or the Platts WTI Mnth 2 index (the assessed prices of transactions with delivery in the next deliverable month or the second deliverable month). Subsequently, Saudi Arabia, Kuwait, and Iraq started using the Argus Sour Crude Index (ASCI) as their price index in 2009, but the ASCI index itself is priced in relation to WTI futures with a differential, which imply those countries still effectively benchmark their crude oil selling prices to WTI.
The volatility of crude oil prices after the US oil price decontrol led to the development of the NYMEX WTI Light Sweet Crude Oil futures contract in 1983. The NYMEX Crude Oil contract trades under the symbol CL on the New York Mercantile Exchange, now part of Chicago Mercantile Exchange. The contract is for 1,000 US barrels, or 42,000 US gallons, of WTI crude oil, the minimum tick size of the contract is $0.01 per barrel ($10 for contract), and the contract price is quoted in US dollars. Monthly contracts are available for the current year, the following 10 calendar years, and 2 additional months. For example, from the perspective of any day in June before the last trade date for the June 2020 contracts, contracts for June 2020, July 2020, August 2020, ... December 2030, January 2031, and February 2031 are available for trading. The maximum number of contracts would be 134 contracts, which occurs at the expiry of a December contract when contracts for a new calendar year and two months are made available for trading.
Cushing, Oklahoma is a major trading hub for crude oil and has been the delivery point for crude contracts and therefore the price settlement point for West Texas Intermediate on the New York Mercantile Exchange for over three decades. The town of Cushing, Oklahoma is a small, remote place with only 7,826 inhabitants (according to the 2010 Census). However, it is the site of the Cushing Oil Field, which was discovered in 1912, and dominated U.S. oil production for several years. The area became a "vital transhipment point with many intersecting pipelines, storage facilities, and easy access to refiners and suppliers," infrastructure which remained after the Cushing field had declined in importance. Crude oil flows "inbound to Cushing from all directions and outbound through dozens of pipelines". It is in Payne County, Oklahoma, United States.
West Texas Intermediate
West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX). The WTI oil grade is also known as Texas light sweet. Oil produced from any location can be considered WTI if the oil meets the required qualifications. Spot and futures prices of WTI are used as a benchmark in oil pricing. This grade is described as light crude oil because of its low density and sweet because of its low sulfur content.
The price of WTI is often included in news reports on oil prices, alongside the price of Brent crude from the North Sea. Other important oil markers include the Dubai crude, Oman crude, Urals oil, and the OPEC reference basket. WTI is lighter and sweeter, containing less sulfur than Brent, and considerably lighter and sweeter than Dubai or Oman.
Unlike Brent crude, WTI crude oil is not from any specific oil fields. Rather, WTI is described (for example by the Alberta Government) as "light sweet oil traded and delivered at Cushing, Oklahoma" (with WTI Midland and WTI Houston crude oil defined similarly for Midland, Texas, and Houston, Texas respectively). Historically,[when?] local trade between oilfield production and refineries around Midland, Texas, and Cushing, Oklahoma, could be said[by whom?] to define WTI oil, but as local production declined, pipelines into those areas began to deliver crude oil of other grades, produced and blended elsewhere, which were also accepted as WTI. The WTI futures contract formalized this relationship by specifying that the deliverable asset for the contract could be a blend of crude oil, as long as it was of acceptable lightness and sweetness. Crude oil lightness is characterized by oil gravity, and crude oil sweetness by sulfur content. Measurements of lightness and sweetness of WTI changes depending on the particular light and sweet oil traded at Cushing at the time of the measurement, and even the particular measurement methodology.
The Platts and Argus API and sulfur measurements are descriptions of WTI as assessed, while the NYMEX WTI futures contract characterization is a requirement for WTI crude oil delivery to the contract. WTI crude oil will typically satisfy the WTI futures contract requirements and be close to the Platts and Argus assessed values at the time.
The US governmental decontrol of oil prices on January 28, 1981, marked the beginning of the physical WTI Crude Oil spot market. Under the previous US Emergency Petroleum Allocation Act of 1973, WTI crude oil traded under a variety of spot prices split into various categories set by the price controls. After the price decontrol, WTI graded crude oil traded under spot prices centered around spot prices at Cushing, Oklahoma; Midland, Texas; and Houston, Texas (specifically at the Magellan East Houston "MEH" Terminal). Oil price collapses during 1985-1986 significantly reduced local oil production around Cushing, and linked Gulf Coast imported crude oil supplies into the Cushing region and the WTI market. The growth of the WTI spot market came in tandem with the growth of the WTI futures market. The volatility of WTI spot prices lead to the development of WTI futures contracts, while the adoption of the WTI futures contracts as hedging tools by producers and refiners worldwide lead to the worldwide adoption of assessed physical WTI spot prices as benchmark prices for crude.
Price Reporting Agencies (PRAs), such as Platts and Argus Media, compiled assessment prices of WTI based on prices of spot transactions starting in 1981. Eligible spot transaction prices at Cushing, Oklahoma, is typically reported as WTI, while eligible spot transactions at Midland, Texas, and Houston, Texas (at the MEH Terminal) are reported as WTI Midland, and WTI Houston respectively. The development of WTI spot and futures markets led crude oil producers around the world to use assessed WTI prices as a benchmark in oil pricing. For example, in 2008, Saudi Arabia, Kuwait, Iraq, Colombia, and Ecuador based their crude oil selling prices on either the Platts WTI Mnth 1 index or the Platts WTI Mnth 2 index (the assessed prices of transactions with delivery in the next deliverable month or the second deliverable month). Subsequently, Saudi Arabia, Kuwait, and Iraq started using the Argus Sour Crude Index (ASCI) as their price index in 2009, but the ASCI index itself is priced in relation to WTI futures with a differential, which imply those countries still effectively benchmark their crude oil selling prices to WTI.
The volatility of crude oil prices after the US oil price decontrol led to the development of the NYMEX WTI Light Sweet Crude Oil futures contract in 1983. The NYMEX Crude Oil contract trades under the symbol CL on the New York Mercantile Exchange, now part of Chicago Mercantile Exchange. The contract is for 1,000 US barrels, or 42,000 US gallons, of WTI crude oil, the minimum tick size of the contract is $0.01 per barrel ($10 for contract), and the contract price is quoted in US dollars. Monthly contracts are available for the current year, the following 10 calendar years, and 2 additional months. For example, from the perspective of any day in June before the last trade date for the June 2020 contracts, contracts for June 2020, July 2020, August 2020, ... December 2030, January 2031, and February 2031 are available for trading. The maximum number of contracts would be 134 contracts, which occurs at the expiry of a December contract when contracts for a new calendar year and two months are made available for trading.
Cushing, Oklahoma is a major trading hub for crude oil and has been the delivery point for crude contracts and therefore the price settlement point for West Texas Intermediate on the New York Mercantile Exchange for over three decades. The town of Cushing, Oklahoma is a small, remote place with only 7,826 inhabitants (according to the 2010 Census). However, it is the site of the Cushing Oil Field, which was discovered in 1912, and dominated U.S. oil production for several years. The area became a "vital transhipment point with many intersecting pipelines, storage facilities, and easy access to refiners and suppliers," infrastructure which remained after the Cushing field had declined in importance. Crude oil flows "inbound to Cushing from all directions and outbound through dozens of pipelines". It is in Payne County, Oklahoma, United States.
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