Analys
Brent and WTI – A tale of two benchmarks


Brent and West Texas Intermediate (WTI) are two globally recognised oil benchmarks. When market participants refer to the price of oil, they typically refer to one or the other or both. But despite having quite similar chemical properties, there are important distinguishing features between the two. Financial markets recognise these differences and, as a result, price the two differently. The two benchmarks have contrasting features in terms of where the oil is produced, how it is stored and transported and the way it is traded in international markets. These differences not only explain the historical price discrepancy between the two, but also help us understand why the two have behaved differently during the coronavirus pandemic and the ensuing market volatility. This article will contrast the distinguishing features between the two and, after developing a new lens to view the two benchmarks, replay the recent episode when WTI prices crashed into negative territory. The article will conclude by outlining the forces which will shape the fluid commodity going forward.
Same, same, but different
In ‘A tale of Two Cities’ by Charles Dickens, Sydney Carton sacrifices his life to save Charles Darnay, who is married to the woman Carton loves, by taking his place in prison moments before he is taken to the guillotine during the French revolution. He is able to pull off this selfless act of bravery thanks to the uncanny resemblance between him and Darnay. Similarly, most people would not be able to tell the difference if a barrel of WTI was replaced with one for Brent given the likeness between the two. Both Brent and WTI are referred to as light and sweet. They are ‘light’ in terms of the American Petroleum Institute (API) gravity. Having an API gravity greater than 10 makes them light and allows them to float on water, while an API gravity of less than 10 would have caused them to sink. Similarly, both have low sulphur content making them ‘sweet’ and easy to refine (See Figure 01).

But while Carton and Darnay looked alike, they were distinctly different individuals. Brent and WTI too, despite their resemblance, have their disparities. Brent Crude is extracted from the North Sea. Oil production from Europe, Africa and the Middle East tends to use Brent as its main benchmark. This accounts for around two-thirds of internationally traded crude oil. The Organisation of the Petroleum Exporting countries (OPEC), an intergovernmental organisation comprising 13 key oil producing countries as well as their 10 partner countries (collectively referred to as OPEC+), also typically use Brent as their oil price benchmark. In contrast, WTI is sourced primarily from Texas and most oil production in the US uses WTI as its main benchmark.

Brent and WTI have always traded at different prices giving rise to the Brent – WTI spread (Figure 02). Purely in terms of quality, WTI has a slight edge over Brent on account of its lower sulphur content making it moderately ‘sweeter’ and thus easier to refine. For this reason, WTI ought to theoretically trade at a premium over Brent. For a large part of the first decade of this century, WTI did indeed trade at a premium, i.e. the Brent – WTI spread was negative. Over the last decade however, the shale revolution in the US has brought large volumes of oil into the market making the US one of the largest oil producers in the world. The shale revolution refers to a combination of technological improvements and financial infrastructure enabling the US to produce oil from low-permeable shale, sandstone and carbonate rock formations in larger quantities than ever before. The shale oil industry has grown rapidly since 2011 and accounted for 63% of total US crude oil production in 2019 (according to the US Energy Information Administration). In line with economic principles of demand and supply, as the total volume of oil production increased in the US, this put downward pressure on WTI. The Brent – WTI spread has generally been positive in the last decade.
Another reason for the Brent – WTI spread is the logistical challenge for the US to transport oil from landlocked production hubs through a network of pipelines and to ship it overseas. This impinges on the overseas demand for oil from the US (WTI). In contrast, Brent is produced at or closer to sea making it easier for it to reach its overseas destinations. The US is however investing heavily in its pipeline infrastructure to enable it to send large vessels of oil from its shores to international buyers. Several such infrastructure projects are expected to be completed by 2021-2022 when we might see an increase in demand for WTI and thus a narrowing of its spread with Brent.
The historic WTI crash
The explanation above of the spread between the two benchmarks omits any discussion about the unprecedented spike on 20 April 2020. This section will unravel the story behind the anomalous occurrence.
On Monday 20 April 2020, markets witnessed a historic crash in WTI prices (Figure 03). The crash occurred a day before the active Nymex WTI futures contract was due to expire. This contract, meant to deliver oil between 01 May and 31 May, crashed into negative territory as oil storage in the US became very tight. With the coronavirus pandemic causing considerable oil demand destruction putting entire countries in lockdown and bringing economic activity to a grinding halt, the reduction in oil production was not enough to balance the market creating a supply glut. The main delivery and settlement point in Cushing, Oklahoma was approaching its storage limit with any additional capacity likely already leased out or earmarked for other purposes. This acute pressure, so close to contract expiry at the point where contracts settle, contributed to the negative price. Those taking physical delivery from the expiring futures contract were being paid to take the oil and find a place to store it. The May contract expired the following day in slightly positive territory. When the June contract became the active contract upon the May contract’s expiry, prices recovered further as the issue of June deliveries creating the same problem was less worrying, at least at that point.

But Brent did not endure a similar crash. The main reason for this is that WTI, traded on the New York Mercantile Exchange (NYMEX), is a deliverable futures contract. Thus, upon expiry, the holder of the futures contract takes delivery of the underlying, i.e. barrels of oil. Brent however, traded on the Intercontinental Exchange (ICE), has a cash settlement procedure whereby the holder of the futures contract need not take delivery of the underlying upon expiry. Therefore, storage issues create a more direct risk to investors in WTI futures.
Outside of this idiosyncrasy pertaining to futures trading, the two benchmarks generally move with a high degree of correlation (Figure 04). At the peak of the coronavirus pandemic’s acceleration in April, a third of global oil demand was wiped out. Soon thereafter, major oil producers Saudi Arabia and Russia engaged in a price war. This created a double shock for oil as the suppliers opened the floodgates at a time when demand had just crashed. Both benchmarks experienced severe price weakness. But as policy decisions from OPEC+ can be expected to impact Brent prices more than WTI, the deal reached by the group at the start of April to cut suppliesprovided slightly more cushioning to Brent.

What happens next?
With a deeper understanding of the drivers of the two benchmarks, historic and recent price behaviour makes more sense. But the all-important question is, “what happens next?”. The fate of oil prices rests heavily on how quickly the world can overcome the pandemic and get the economic engines firing again. Volatility in oil prices may persist in the coming weeks, or even months, until uncertainty with regards to the pandemic and lockdowns diminishes. The relative price behaviour of WTI and Brent during this period will depend on the degree to which producers in the US and OPEC+ cut supplies to balance the market.
We however hope to paint a more optimistic picture of the world in the second half of this year. Oil prices may not recover quickly to where they were in February this year due to an overhang of excess supply, a fractured OPEC+ and a dented global economic engine. Nonetheless, after all the pain, the world will eventually return to some semblance of normalcy. Manufacturers will switch their machines on again, cars will return to the roads and aeroplanes will return to the skies. Once again, oil is expected to be in demand. And while one protagonist had to sacrifice himself to save the other in the tale told by Dickens, we expect both mainstays from the tale of two benchmarks to rise again when the crisis is over.
Mobeen Tahir, Associate Director, Research, WisdomTree
DISCLAIMER
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Analys
Breaking some eggs in US shale

Lower as OPEC+ keeps fast-tracking redeployment of previous cuts. Brent closed down 1.3% yesterday to USD 68.76/b on the back of the news over the weekend that OPEC+ (V8) lifted its quota by 547 kb/d for September. Intraday it traded to a low of USD 68.0/b but then pushed higher as Trump threatened to slap sanctions on India if it continues to buy loads of Russian oil. An effort by Donald Trump to force Putin to a truce in Ukraine. This morning it is trading down 0.6% at USD 68.3/b which is just USD 1.3/b below its July average.

Only US shale can hand back the market share which OPEC+ is after. The overall picture in the oil market today and the coming 18 months is that OPEC+ is in the process of taking back market share which it lost over the past years in exchange for higher prices. There is only one source of oil supply which has sufficient reactivity and that is US shale. Average liquids production in the US is set to average 23.1 mb/d in 2025 which is up a whooping 3.4 mb/d since 2021 while it is only up 280 kb/d versus 2024.
Taking back market share is usually a messy business involving a deep trough in prices and significant economic pain for the involved parties. The original plan of OPEC+ (V8) was to tip-toe the 2.2 mb/d cuts gradually back into the market over the course to December 2026. Hoping that robust demand growth and slower non-OPEC+ supply growth would make room for the re-deployment without pushing oil prices down too much.
From tip-toing to fast-tracking. Though still not full aggression. US trade war, weaker global growth outlook and Trump insisting on a lower oil price, and persistent robust non-OPEC+ supply growth changed their minds. Now it is much more fast-track with the re-deployment of the 2.2 mb/d done already by September this year. Though with some adjustments. Lifting quotas is not immediately the same as lifting production as Russia and Iraq first have to pay down their production debt. The OPEC+ organization is also holding the door open for production cuts if need be. And the group is not blasting the market with oil. So far it has all been very orderly with limited impact on prices. Despite the fast-tracking.
The overall process is nonetheless still to take back market share. And that won’t be without pain. The good news for OPEC+ is of course that US shale now is cooling down when WTI is south of USD 65/b rather than heating up when WTI is north of USD 45/b as was the case before.
OPEC+ will have to break some eggs in the US shale oil patches to take back lost market share. The process is already in play. Global oil inventories have been building and they will build more and the oil price will be pushed lower.
A Brent average of USD 60/b in 2026 implies a low of the year of USD 45-47.5/b. Assume that an average Brent crude oil price of USD 60/b and an average WTI price of USD 57.5/b in 2026 is sufficient to drive US oil rig count down by another 100 rigs and US crude production down by 1.5 mb/d from Dec-25 to Dec-26. A Brent crude average of USD 60/b sounds like a nice price. Do remember though that over the course of a year Brent crude fluctuates +/- USD 10-15/b around the average. So if USD 60/b is the average price, then the low of the year is in the mid to the high USD 40ies/b.
US shale oil producers are likely bracing themselves for what’s in store. US shale oil producers are aware of what is in store. They can see that inventories are rising and they have been cutting rigs and drilling activity since mid-April. But significantly more is needed over the coming 18 months or so. The faster they cut the better off they will be. Cutting 5 drilling rigs per week to the end of the year, an additional total of 100 rigs, will likely drive US crude oil production down by 1.5 mb/d from Dec-25 to Dec-26 and come a long way of handing back the market share OPEC+ is after.
Analys
More from OPEC+ means US shale has to gradually back off further

The OPEC+ subgroup V8 this weekend decided to fully unwind their voluntary cut of 2.2 mb/d. The September quota hike was set at 547 kb/d thereby unwinding the full 2.2 mb/d. This still leaves another layer of voluntary cuts of 1.6 mb/d which is likely to be unwind at some point.

Higher quotas however do not immediately translate to equally higher production. This because Russia and Iraq have ”production debts” of cumulative over-production which they need to pay back by holding production below the agreed quotas. I.e. they cannot (should not) lift production before Jan (Russia) and March (Iraq) next year.
Argus estimates that global oil stocks have increased by 180 mb so far this year but with large skews. Strong build in Asia while Europe and the US still have low inventories. US Gulf stocks are at the lowest level in 35 years. This strong skew is likely due to political sanctions towards Russian and Iranian oil exports and the shadow fleet used to export their oil. These sanctions naturally drive their oil exports to Asia and non-OECD countries. That is where the surplus over the past half year has been going and where inventories have been building. An area which has a much more opaque oil market. Relatively low visibility with respect to oil inventories and thus weaker price signals from inventory dynamics there.
This has helped shield Brent and WTI crude oil price benchmarks to some degree from the running, global surplus over the past half year. Brent crude averaged USD 73/b in December 2024 and at current USD 69.7/b it is not all that much lower today despite an estimated global stock build of 180 mb since the end of last year and a highly anticipated equally large stock build for the rest of the year.
What helps to blur the message from OPEC+ in its current process of unwinding cuts and taking back market share, is that, while lifting quotas, it is at the same time also quite explicit that this is not a one way street. That it may turn around make new cuts if need be.
This is very different from its previous efforts to take back market share from US shale oil producers. In its previous efforts it typically tried to shock US shale oil producers out of the market. But they came back very, very quickly.
When OPEC+ now is taking back market share from US shale oil it is more like it is exerting a continuous, gradually increasing pressure towards US shale oil rather than trying to shock it out of the market which it tried before. OPEC+ is now forcing US shale oil producers to gradually back off. US oil drilling rig count is down from 480 in Q1-25 to now 410 last week and it is typically falling by some 4-5 rigs per week currently. This has happened at an average WTI price of about USD 65/b. This is very different from earlier when US shale oil activity exploded when WTI went north of USD 45/b. This helps to give OPEC+ a lot of confidence.
Global oil inventories are set to rise further in H2-25 and crude oil prices will likely be forced lower though the global skew in terms of where inventories are building is muddying the picture. US shale oil activity will likely decline further in H2-25 as well with rig count down maybe another 100 rigs. Thus making room for more oil from OPEC+.
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


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