Demystifying the economy | WTI, Brent and others

Every Saturday, one of our journalists answers, in the company of experts, one of your questions on the economy, finances, markets, etc.

Helene Baril
The Press

The two oil prices monitored daily by the media correspond to different types of crude which have long been the most consumed in the world and which serve as a benchmark for all other types of crude oil produced in the world.

“The Brent and WTI indices are two standards among thirty others that we follow a little less in the media,” explains Carol Montreuil, of the Canadian Fuels Association.

Brent oil is a light crude originally produced in the North Sea region that bears this name. It serves as a benchmark for other types of oil produced in the Middle East, Africa and elsewhere in Europe which, like original Brent, can be transported easily from market to market by ship.

WTI, or West Texas Intermediate, is the oil produced in the United States, a light crude like Brent, but which does not have the same ability to access as many markets as Brent.

WTI sells for less for several reasons. The first being that the United States consumes almost all of its oil and voluntarily limits its export to other markets. Then, American oil, produced mainly in the heart of the American territory, must be transported by pipelines over long distances to reach refineries located near major concentrations of consumers. As its access to the global market is limited compared to Brent, WTI sells for less.

Canadian oil also has its price, Western Canada Select, which is even lower than WTI and Brent because it is of lower quality and not all refineries are able to process it. In addition, Canadian oil does not have access to international markets. All Canadian production, with the exception of that of Newfoundland and Labrador, remains on the Canadian and American market. That could change if the TransMountain pipeline is extended to British Columbia, from where Canadian oil would be exported to Asian markets.

The market takes precedence

The price of oil therefore depends not only on where it is produced, but also on the market for which it is intended. This is the reason why there are a multitude of prices for a similar product all over the world. For example, Mexican oil, known as Maya, sells for different prices depending on the market it is destined for.

The specialized site Oilprice.com tracks 150 different price indices for crude oil. Refineries source oil based on price and product availability. “At any time, a refinery can use several types of crude,” recalls Carol Montreuil.

A refinery can therefore use a mixture of crudes and its production cost will reflect this diet, he continues.

In Quebec, refineries have long consumed crude whose price was aligned with Brent and Arab Light, its two main sources of supply. Since 2019, the oil consumed in Quebec has come entirely from North America, according to The state of energy in Quebec, the bible of statistics published by the Energy Chair of HEC Montréal. The most recent figures indicate that 53% of Quebec’s oil supplies came from Western Canada and 47% from the United States.