The High Price Of Brent Crude Is The Benchmark You Should Be Watching

[FarCenter]

We set another record yesterday. This one has me scratching my head. The Brent WTI spread widened to $27.22. That’s never been seen before.

There are some partial explanations for this phenomenon. Brent is lighter in grade and justifies a somewhat higher price. But not $25.

Another consideration is the increasing flow of crude from the Bakken field in North Dakota. This crude often heads to Cushing, Oklahoma, and therefore creates a supply glut. The WTI price should be lower than Brent based on this. But, one again, $25 seems out of whack. The smart guys up in NDAK are also sending crude by trains to the Gulf area where prices are higher.

Another consideration is that WTI is a hedging mechanism for algo computers. When there is announced evidence of a slowing economy the markets all react. If economic activity is in decline it makes “sense” that crude should trade lower. Computers that are trying to move risk around buy bonds and sell crude. The WTI contract is the place for this type of market force to be settled.

Read more: http://www.businessinsider.com/the-high-price-of-brent-crude-is-the-benchmark-you-should-be-watching-2011-9

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Brent Crude oil is currently $115.59 / barrel. WTI is only $89.16 / barrel, but that price is relevant only for US midwest refineries, not the bulk of refining on the Gulf, East, and West coasts.

[Turbineguy]

1. Brent crude

is higher quality (fewer undesirable by-products and less waste), lower density, lower sulfur content and lower viscosity (easier and cheaper to pump and transport). Better for refining into gasoline and diesel fuel. I think the biggie however is the lower sulfur content. Consumers of heavy high sulfur residual (like ships for example) have to switch to light oil in more and more areas, creating demand.

BTW. Venezuelan crude has the highest sulfur content. The loss in Libyan oil production is also a factor in the spread.

[taught_me_patience]

2. Interesting... thanks! n/t