If you're interested in trading commodities, particularly crude oil, you've likely come across the term West Texas Intermediate (WTI). In this article, we’ll break down what WTI is, how it differs from other oil benchmarks, and why traders should pay attention to it.Understanding West Texas Intermediate (WTI)West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. It is primarily extracted in the United States, specifically in Texas, Louisiana, and North Dakota. WTI is known for its high quality – it's light (low density) and sweet (low sulfur content), making it easier and cheaper to refine into gasoline and other petroleum products.WTI vs. other oil benchmarksWTI is one of the three major oil benchmarks, alongside Brent Crude and Dubai/Oman Crude. Here’s how they differ:BenchmarkOriginCharacteristicsPrimary marketWTIUS (Texas, Louisiana)Light and sweetNorth AmericaBrent CrudeNorth SeaLight and sweetEurope, Africa, Middle EastDubai/Oman CrudeMiddle EastHeavier and sourAsiaWhile WTI is the primary benchmark for US oil prices, Brent Crude is more widely used for global oil pricing. The price difference between WTI and Brent (known as the Brent-WTI spread) is closely watched by traders for arbitrage opportunities.How is WTI priced?WTI crude oil is traded on the New York Mercantile Exchange (NYMEX) under the ticker CL. Prices are influenced by: Supply and demand, namely US production levels, OPEC decisions, and global consumption.Geopolitical events like wars, sanctions, and political instability can disrupt supply.Economic data, including GDP growth, industrial activity, and inflation impact oil demand.US dollar strength. Since oil is priced in USD, a stronger dollar can lower oil prices. Why do traders follow WTI? High liquidity. WTI futures are among the most traded oil contracts, offering tight spreads.Volatility opportunities. Oil prices can swing sharply due to supply shocks or economic shifts.Hedging and speculation. Producers hedge against price drops, while traders speculate on price movements.Macroeconomic indicator. Oil prices reflect global economic health, influencing other markets. How to trade WTI Crude oilOn trading platforms, WTI can be traded in the following ways.WTI futures contracts (NYMEX: CL)The most direct way to trade WTI is through futures contracts listed on the New York Mercantile Exchange (NYMEX) under the ticker CL. These contracts represent an agreement to buy or sell 1,000 barrels of WTI crude oil at a predetermined price on a set future date.Each 0.01 move in price equates to a 10 gain or loss per contract, providing substantial leverage. Trading is available nearly 24 hours a day with only a brief daily break, allowing global participants to react to market-moving events as they unfold. While physical delivery is the official settlement method, most traders close or roll their positions before expiration to avoid taking delivery.CFDs (contracts for difference)For traders who prefer not to deal with futures contracts directly, CFDs provide a flexible alternative. These derivative products allow speculation on WTI price movements without requiring ownership of the underlying asset.One of the key advantages of CFD trading is the ability to go both long and short with equal ease, making it possible to profit from both rising and falling markets. Many platforms offer leverage on WTI CFDs, which can amplify gains but also increase risk exposure. Unlike futures, CFDs don't have expiration dates, allowing traders to maintain positions indefinitely - though overnight financing costs should be factored into the strategy.Oil ETFs and ETNsFor those who prefer trading through traditional brokerage accounts, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) offer exposure to WTI prices without the complexities of futures trading.While these products provide convenient access to oil markets, they come with unique considerations. ETFs that roll futures contracts may suffer from "contango," where longer-dated contracts are more expensive than near-term ones, leading to value erosion over time. Additionally, these instruments don't always perfectly track spot prices due to their structure and management fees.Options on WTI futuresThese derivative contracts give the right, but not the obligation, to buy (call option) or sell (put option) WTI futures at a specified price before a certain date.Options can be used for directional bets, with calls profiting from price increases and puts benefiting from declines. They're also valuable for hedging existing positions – for example, a producer might buy puts to protect against price drops. More complex strategies like spreads (combining multiple options) can be employed to limit risk while maintaining profit potential.ConclusionWest Texas Intermediate (WTI) is a crucial benchmark for oil traders, offering liquidity, volatility, and insights into global energy markets. Whether you're hedging risk or speculating on price movements, understanding WTI can help you make more informed trading decisions.Discover the latest Headway updates on Telegram, Facebook, and Instagram.