WTI-Brent Crude Spread Widened

The gap between New York’s West Texas Intermediate (WTI) crude prices and London’s Brent crude prices has widened.

The recent oil price difference between the two contracts is almost $18 per barrel. FactSet research data shows that this level is twice as much as the rate where it began this year. In August of 2011, the variance between the two types of crude reached more than $26 per barrel.

Brent crude prices increased due to the extremely cold weather in Europe and geopolitical worries regarding Iran. On the other hand, the main driver of higher WTI oil prices is the oil inventory surplus in Cushing, Oklahoma, the delivery hub of the oil market.

With this, there are growing discussions that the WTI has lost its attractiveness as an oil benchmark.

International Energy Agency (IEA)’s senior oil market analyst Mr. Matthew Parry said that WTI has surely lost its oil industry standard status, mostly because of supply concerns locally that do not represent the general world market.

WTRG Economics’ energy economist Mr. James Williams said that WTI will be unable to serve as an authentic benchmark due to the pipeline for Gulf Coast refiners. He further adds that Trading in Brent crude removes some of the market share of WTI oil.

Petroleum-industry analyst Mr. Bob van der Valk said that the solution for this is to build the Keystone pipeline XL connecting Alberta, Canada and the Gulf, and reverse the Enterprise Seaway that pumps crude oil from Cushing, Oklahoma to the refineries in the gulf coast, instead of using imported oil coming from Houston.

TransCanada Corp’s Keystone XL project plans have been postponed as it applies for a multistate license in the midst of environmental issues.

Recently, WTI crude prices per barrel on the NYMEX rose by 51 cents to end at $102.31. Brent crude oil prices increased by 1% or $1.18 to reach $120.11 in London’s ICE Futures

By Chris Termeer