Even though the chemical composition of crude oil is similar, there are differences in pricing for its various forms, such as West Texas Intermediate. In oil trading, this crude oil pricing can result in profit opportunities for savvy traders. Though various arbitrage techniques, profits can be booked from inefficiencies in the market and other factors, such as refinery output.

West Texas Intermediate is also known as “Texas Light Sweet” as it has both a low density and low sulfur content. It is the primary benchmark for oil futures trading for the Chicago Mercantile Exchange. West Texas Intermediate is lower in both sulfur and density than North Sea Brent Crude, another benchmark for trading oil.

In oil trading . refinery capacity plays a huge role in the price of West Texas Intermediate and other types of oil. For West Texas Intermediate, the town of Cushing, Oklahoma is the hub for its commercial activity. That is due to the wide array of pipes, storage facilities, and access to refineries in the area.

As with stocks and bonds, commodities can be utilized for a wide range of investing and speculating tactics and strategies, both short term and long term. Arbitrage profits can also be made in the crude market. Arbitrage is the activity of profiting from inefficiency in the market. It can be result from there being a different price for a commodity in one market than another. When that happens, traders will buy in the market that has the lower price, then sell in the market where the higher price is being paid. Due to the efficiency of today’s commodity exchanges and the global network of traders, opportunities such as these generally close quickly.

At various times, arbitrage profits have been made due to pricing differentials concerning West Texas Intermediate crude. In the past, that has happened with prices falling due to storage facilitates being full at Cushing (too much supply, not enough demand). For a period of two years, due to a variety of issues, Brent Crude traded for about $20 higher per barrel than West Texas Intermediate. That margin has narrowed greatly due to market forces.

That is due to all commodity costs being influenced over the long term by basic supply and demand from the market, which can reward investors with higher prices. In the short term, in the words of legendary investor George Soros, the financial markets are “chaotic.” That results from price movements as a result of speculators, seeking to profit from factors other than fundamental economic forces. As an example, if there is a hurricane heading up the Gulf of Mexico it can influence the price of West Texas Intermediate due to potential damage to local refineries.

The greatest profits in the commodities markets are made from investing in the long term movements in the market due to fundamental changes in the supply and demand of a commodity, no matter where the crude oil is refined. Due to local factors, there could be opportunities for profits from West Texas Intermediate. Speculators can gain from short term trading. For long term investors, there is the chance to buy on the dips to establish a position that will yield profits over the long term.