West Texas Intermediate

West Texas Intermediate (often abbreviated as WTI) is a specific grade of crude oil and one of the most important oil benchmarks in the world. Think of it as the reference price for oil in North America, much like the S&P 500 is a reference for the U.S. stock market. Its other, more descriptive name is “Texas Light Sweet,” which perfectly captures its two standout qualities. “Light” refers to its low density (meaning it has a high API gravity), and “sweet” refers to its low sulfur content. This combination makes it relatively easy and inexpensive to refine into high-demand products like gasoline and diesel. Sourced primarily from inland oil fields in the United States, WTI is more than just a commodity; its price is a closely watched indicator of the health of the U.S. economy, with its fluctuations having a direct impact on industries and consumer wallets. When you hear a news anchor in New York or Chicago mention the “price of oil,” they are almost always talking about WTI.

WTI's reputation as a “high-quality” crude isn't just marketing—it's chemistry. Its two defining features make it highly sought after by refineries.

• Light: WTI has a low density. This physical property is a big deal because lighter crude is easier to pump and transport. More importantly, the refining process yields a greater percentage of premium products from it, especially gasoline. It's like getting more cream from the same amount of milk.
• Sweet: This has nothing to do with taste! “Sweet” crude has a low sulfur content (typically below 0.5%). Low sulfur is fantastic for two reasons: it's less corrosive to expensive refinery equipment, and it requires less energy-intensive processing to meet clean-air standards. This efficiency translates directly into lower costs and higher profits for refiners.

The WTI price isn't set in a smoke-filled room; it's determined by open market trading, but with a very specific location and instrument at its heart.

The physical pricing point for WTI is Cushing, Oklahoma. This small city is a massive nexus of pipelines and storage tanks, effectively the “crossroads” of the American oil market. The price of WTI reflects the value of oil delivered to Cushing. This land-locked nature is a critical feature—and sometimes a weakness. If storage tanks at Cushing get full or pipelines are congested, it can create supply bottlenecks that push the WTI price down, even if global demand is strong.

The official WTI price is set by trading futures contracts on the New York Mercantile Exchange (NYMEX), which is part of the CME Group. A futures contract is a legally binding agreement to buy or sell a set amount of WTI (specifically, 1,000 barrels) at an agreed-upon price for delivery at a future date. These contracts are the main stage where oil producers, consumers (like airlines and refineries), and speculators all interact, with their collective actions of buying and selling shaping the price second by second.

WTI isn't the only star in the oil universe. Its global counterpart is Brent Crude, which is the benchmark for oil prices in Europe, Africa, and the Middle East. While both are light, sweet crudes, their key difference is geography.

• WTI is Land-Locked: Priced in Cushing, its logistics depend on pipelines and storage on the U.S. mainland.
• Brent is Sea-Based: Sourced from the North Sea, it is loaded onto tankers and easily shipped worldwide. This makes Brent more reflective of global supply-and-demand dynamics.

This geographical difference gives rise to the WTI-Brent spread, which is simply the price difference between the two benchmarks. A savvy investor watches this spread, as a large gap can signal U.S. supply gluts, transportation issues, or differing geopolitical risks impacting the two regions.

For a value investing practitioner, the daily wiggles of the WTI price are less important than what it reveals about the bigger picture. You're not trying to guess where the price will be next week; you're using it as a tool for deeper analysis.

• An Economic Barometer: The price of WTI is a powerful economic signal. Persistently high prices can fuel inflation, squeezing corporate profit margins (especially for non-energy companies) and eroding consumer purchasing power. Conversely, a sharp fall in prices can signal slowing economic growth or even a recession.
• Sector Deep Dive: Oil is the lifeblood of the modern economy, and its price directly influences the fortunes of entire industries. Understanding this relationship is key to finding value.
  • Obvious Winners (from high prices): Oil and gas exploration and production companies see their revenues and profits soar.
  • Obvious Losers (from high prices): Airlines, trucking, and shipping companies see their fuel costs spike. Chemical manufacturers that use oil as a feedstock face higher input costs.
• Spotting Opportunity: By understanding the oil cycle through the lens of WTI, a value investor can better assess when energy stocks might be trading below their intrinsic value or when oil-dependent industries are facing temporary—but fixable—headwinds. It’s a crucial piece of the macroeconomic puzzle that helps you understand the environment in which your target companies operate.