"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Friday, February 11, 2011

Brent Crude Oil versus West Texas Intermediate Crude

I have been fielding a few emails asking me what is going on with the crude contracts and the wide discrepancy between Brent and WTI.

Here is a spread chart indicating the extent to which this spread has blown out in favor of Brent.


It is evident that crude traders are working the one off against the other.

I think it is important to keep in mind for those who might be unfamiliar with these markets that WTI has a delivery point for the contract in Cushing, Oklahoma.

The latest data that I have shows 345.1 million barrels of crude there at Cushing, compared to 331.4 million at the same time last year or about 4% more supply. There has been a steady build in those supplies since early January of this year. The numbers therefore for WTI are not particularly bullish from a fundamental standpoint.

However crude has not traded purely on its fundamentals for a long time now as it too, like most commodities, has a speculative element going for it. As such, it is heavily influenced by money flows from the hedge fund community.

I am of the opinion that WTI is being used as the short leg of a spread involving funds playing off the Egyptian crisis. They are going long Brent and shorting WTI and moving in and out of that spread as developments occur in the mid East and as economic data gets released here in the US.

It is hard to say how high this spread could run, seeing it is already at record levels but since Brent is more indicative of the world crude oil price, if events were to further deteriorate acrosss the Mid-East, I can see it moving higher. On the other hand, if things look to calm down over there, this spread could also reverse rather sharply.

Stay tuned.

1 comment:

  1. http://www.jeffrubinssmallerworld.com/2011/02/02/is-west-texas-intermediate-still-the-global-benchmark-for-oil-prices/

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