News from Notch Consulting, Inc.

January 30, 2011

Brent/WTI price spread hits record high

Filed under: General, Uncategorized — Notch @ 10:22 pm

Sam Fletcher at the Oil & Gas Journal highlights the record price spread between front-month benchmark US light, sweet crudes and North Brent oil, which widened to a record $11.75/bbl on Jan. 27 and prompted speculation that the higher priced Brent should replace West Texas Intermediate as the market’s usually quoted benchmark.

Energy prices reversed again in the New York market, giving back much of the gains from the previous session, due to weak economic data and talk that the Organization of Petroleum Exporting Countries may increase production.

Fletcher has much more on factors affecting the spread here.

At The Barrel, John Kingston has more on this development in a post entitled “Oil traders watch Brent/WTI with dropping jaws.”

If the NYMEX light sweet crude oil contract is dying, and is irrelevant because its Cushing delivery point is drowning in oil that can’t move to the US Gulf refining centers, it has a strange way of showing it. Open interest at this point is slightly more than it was at the beginning of 2010.

But that doesn’t cover up the bewilderment that the oil industry is expressing at the Brent/WTI spread, which on Wednesday climbed above $11 before falling back slightly. Still, Brent was a little more than $2 over WTI in early December, and now it’s double digits. This is a relationship that for years, when Brent exceeded WTI, it was newsworthy. Now the only thing newsworthy about it is the double-digit size of Brent’s premium to the Cushing-based barrel.

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