West Texas Intermediate facts for kids
West Texas Intermediate (WTI), also known as Texas light sweet, is a type of oil that is very important in the world of energy. Think of it as a main example, or "benchmark," that helps set oil prices.
This oil is called "light crude oil" because it is not very thick. It is also called "sweet" because it has very little sulfur in it. Sulfur is a chemical element that can be harmful to the environment when oil is burned. Because WTI is light and sweet, it is easier and cheaper to turn into products like gasoline and diesel.
WTI is the main oil used in futures contracts on the New York Mercantile Exchange. This means that people buy and sell contracts for WTI oil to be delivered in the future. The price of WTI is often mentioned in the news when people talk about oil prices, usually alongside the price of Brent Crude, which comes from the North Sea.
Contents
What Makes WTI Special?
WTI oil comes mostly from oil fields in the United States, especially in Texas, Louisiana, and North Dakota. It is known for being very high quality.
Light and Sweet Oil
The terms "light" and "sweet" describe the oil's qualities.
- Light: This means the oil has a low density. It flows easily and is simpler to refine into fuels.
- Sweet: This means the oil has a low sulfur content, usually less than 0.5%. Low sulfur oil is better for the environment and easier to process.
These qualities make WTI a popular choice for refineries.
Why is WTI Important for Prices?
WTI is a "benchmark" crude oil. This means its price helps set the price for many other types of oil around the world.
How Benchmarks Work
Imagine you want to buy a new video game console. There might be a few main brands that everyone knows. Their prices help you guess what other, less famous consoles might cost. WTI works like that for oil. Its price helps traders and companies figure out the value of other oils.
Futures Contracts Explained
Futures contracts are agreements to buy or sell something at a specific price on a future date. For WTI, these contracts are traded on the New York Mercantile Exchange (NYMEX).
- People buy these contracts if they think the price of oil will go up.
- People sell them if they think the price will go down.
These trades help create the daily WTI price you hear about.
Where Does WTI Go?
Most WTI oil is refined in the Midwest United States and the Gulf Coast region. It is transported through a large network of pipelines.
Pipelines and Storage
A major hub for WTI is Cushing, Oklahoma. This town has huge storage tanks for oil and is a meeting point for many pipelines. Oil from different parts of the U.S. flows into Cushing, and then it is sent to refineries.
WTI vs. Brent Crude
WTI and Brent crude are the two most famous oil benchmarks.
- WTI is mainly from the United States.
- Brent Crude comes from oil fields in the North Sea, near Europe.
Their prices can be different because of things like where they are produced, how easy it is to transport them, and how much demand there is in different parts of the world. Sometimes WTI might be more expensive, and sometimes Brent might be.
History of WTI
WTI has been a key benchmark for oil prices for many years. Its importance grew as the United States became a major oil producer and consumer. The futures contracts for WTI started trading in the early 1980s, making it easier for people to buy and sell oil for future delivery.
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