Erin Huerta, “Understanding Brent and West Texas Intermediate (WTI) Crude Price”
Mentor: Kundan Kishor, Economics, Letters & Science (College of)
Poster #144
This study investigates the dynamic relationship between the Brent-WTI crude oil price spread and USD exchange rates, focusing on a significant shift that occurred around 2018. Brent crude, produced in the North Sea, serves as a global benchmark for oil pricing, while West Texas Intermediate (WTI) crude, primarily produced in Texas, functions as a key U.S. market indicator. Both are high-quality “light and sweet” crude oils with low densities and easier refinement processes. Historically, these benchmark crude oils maintained a predictable pricing relationship with Brent typically commanding a premium over WTI, with the difference referred to as the Brent-WTI spread. Our analysis reveals that the traditional negative correlation between this spread, and USD strength underwent a fundamental reversal in 2018, transitioning to a positive relationship. Using regression analysis with 95% confidence intervals, we document this structural change and explore potential causal factors including shifts in global oil production patterns, changes in U.S. export policies, and evolving market dynamics. This research examines how these developments transform established market relationships between oil pricing differentials and currency valuations.