Brent and WTI: what separates them and what the spread says

Two crudes, two benchmarks

There is no single oil price. There are dozens of crudes with different characteristics, and the market has settled on two benchmarks against which nearly everything else is priced. Brent takes its name from a North Sea field and serves as the reference for two thirds of global crude trade. WTI, West Texas Intermediate, is produced and stored in the United States and sets the price of the North American market.

Both are light, sweet crudes — low density and low sulphur — which makes them cheap to refine into petrol and diesel. That is why they can be compared directly: they price the same product quality in two different places.

Why Brent usually costs more

The difference lies not in quality but in geography. Brent is produced on offshore platforms and loaded straight onto tankers, so it reaches any port in the world without friction. WTI is stored at Cushing, Oklahoma, a pipeline hub in the middle of the continent, more than a thousand kilometres from the coast. Getting it out costs money.

On top of that logistical handicap, Brent’s seaborne exposure makes it more sensitive to geopolitical tension in the Middle East or trouble along shipping routes. Historically the differential has run between three and eight dollars in Brent’s favour.

What it means when the spread moves

A widening differential usually means something is squeezing supply outside the United States: conflict in a producing region, trouble in the Suez Canal or the Strait of Hormuz, an OPEC cut. Brent picks it up first because it prices the crude that travels by sea.

A narrowing differential points the other way: excess US crude looking for an outlet, or storage trouble at Cushing. And when it actually inverts — WTI above Brent — the anomaly usually signals a bottleneck specific to the American market, such as a mass refinery outage or a domestic supply disruption.

The most extreme episode came in April 2020, when WTI settled negative for the first time in history: Cushing’s tanks were full and holders of contracts requiring physical delivery paid to get rid of them. Brent, with access to floating storage on tankers, never reached that extreme.

Why it affects you even if you never invest

Crude prices enter inflation through two channels. The direct one is the pump: what you pay to fill the tank and heat your home. The indirect one, slower but broader, is the transport of everything else; when oil rises, the cost of moving any good eventually rises with it.

That is why central banks watch it closely, and why a sustained rise in crude conditions interest rate decisions. In Europe the relevant benchmark is Brent, not WTI: it is the one setting the price of the crude arriving at European refineries.