Beyond the attributes that set West Texas Intermediate Crude (WTIC) and Brent crude oil apart comes the question of which type of crude makes for a better investment. Recent historical data puts that question to rest, as one clear winner emerges. [Read on!] Words: 1300
So says Jared Cummans (www.CommodityHQ.com) in edited excerpts from his original article which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited below for length and clarity – see Editor’s Note at the bottom of the page. (This paragraph must be included in any article re-posting to avoid copyright infringement.)
Cummans goes on to say, in part:
What’s The Difference?
One of the most important issues is the varying types of oil and the differing benchmarks for crude oil prices around the world… Below are the major descriptive factors:
- API gravity: This (American Petroleum Institute) gravity is a statistic that is used to compare a petroleum liquid’s density to water. This scale generally falls between 10 and 70, with ‘light’ crude oil generally having an API on the higher side of the scale while ‘heavy’ oil has a reading that falls on the lower end of the range.
- sulphur content: When oil has a total sulfur level greater than 0.5%, then it is considered ‘sour’ while a content less than 0.5% indicates that an oil is ‘sweet’. Sour oil is more prevalent than its sweet counterpart and it comes from oil sands in Canada, the Gulf of Mexico, some South American nations as well as most of the Middle East. Sweet crude, on the other hand, is generally produced in the central U.S., the North Sea region of Europe, as well as much of Africa and the Asia-Pacific region. While both types are useful, end users generally prefer sweet crude as it requires less processing in order to remove impurities than its sour counterpart. So in summary, light and sweet forms of crude oil are heavily prized while heavy sour types of fuel often trade at a discount to their more in-demand cousins.
With these two key factors, investors can then begin to price these different types of oil on the world market. Currently, there are two major benchmarks for world oil prices:
- West Texas Intermediate (WTI for short) crude oil and
- Brent crude oil.
Both are light sweet crude oils although WTI is generally sweeter and lighter than its European counterpart.
Brent and WTI: Head-to-Head
Perhaps the easiest way to track the historical performance of the commodities involves two ETFs, the United States Oil Fund (USO) which tracks WTI futures, and the United States Brent Oil Fund (BNO) which offers exposure to Brent crude. Since its inception in mid 2010, BNO…[has] been slaughtering WTI, with a return of approximately 75% for the fund, [compared to] USO [which] has gained just 25%… Narrowing the time frame to just 2011, BNO jumped 19.5% compared to a return of -2.1% for USO. As for this year, BNO is up 15% YTD while USO is up just 7.4% by comparison.
Brent has been able to outdo its competitor by a large margin, despite both commodities being relatively similar in the grand scheme of things, [because] the past two years have seen a fair amount of volatility from the Middle East, a region that produces a fair amount of the world’s Brent supply.
[Should the region continue to remain unstable] it may be a while before we see [the price of] Brent fall. If…[you tend to believe that will be the case then] Brent is the best crude option for you as it has the potential to continually outperform WTI.
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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