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he global oil market was thrown into disarray on Thursday as the spread between the world’s most important oil pricing benchmark, Nymex West Texas Intermediate, and other international reference prices, including North Sea Brent, ballooned to record levels.
Costanza Jacazio, an oil analyst at Barclays Capital in New York, said the WTI price system was now in disrepute.
“WTI has become about as useful as a chocolate oven-glove,” said Ms Jacazio. “It has for the moment lost any claim to be a meaningful indicator of broader market conditions.”
Nymex February West Texas Intermediate fell $1.88 to $35.40 a barrel after touching a low of $33.70. ICE February Brent, which was due to expire at the close of Thursday’s session fell 39 cents to $44.69 a barrel, while the March Brent contract lost 44 cents to $47.18.
Brent crude prices at one point traded at a record premium of $11.56 a barrel over the February WTI contract, with the US benchmark coming under pressure after crude stocks climbed to record levels at Cushing, Oklahoma, the key hub of America’s oil pipeline network. Crude stocks at Cushing, the delivery point for WTI, have reached 33m barrels, the highest level since records started in 2004. Local supply, demand and inventories in Cushing, have a large direct – and, according to many, excessive – impact on WTI prices, often overshadowing global trends.
Mars blend, an important US crude benchmark for the local physical market, surged to a premium of $3 a barrel above WTI, well beyond the traditional discount of $4-$5. Meanwhile, Light Louisiana Sweet, another US grade, traded at a multi-year premium of $9.90.
The surge in premiums for Mars and LLS highlighted that weak WTI prices are the result of local factors at Cushing, rather than poor overall demand in the US, traders said.
This rare weakness in WTI prices has proved much more severe than a previous episode in early 2007 and is causing hefty losses to long-only, passive inventors in commodities, which use Nymex contracts to gain exposure to energy prices.
It is also hindering some unsophisticated hedging strategies, which also rely on Nymex WTI futures.
The price spread between WTI for immediate delivery and forwards contracts also widened to extreme levels, deepening the market condition known as “contango”, where future prices are higher than spot prices.
The surge in inventories at Cushing also widened “time spreads” – the price difference for immediate delivery and forwards contracts. Nymex February WTI traded $7.30 a barrel below Nymex March WTI. The time-spread between March and April stood at a hefty $4.30 a barrel, triggering warnings from some traders that the WTI market was suffering a “contango bubble”.
www.ft.com/cms/s/0/517d...779fd2ac.html
Costanza Jacazio, an oil analyst at Barclays Capital in New York, said the WTI price system was now in disrepute.
“WTI has become about as useful as a chocolate oven-glove,” said Ms Jacazio. “It has for the moment lost any claim to be a meaningful indicator of broader market conditions.”
Nymex February West Texas Intermediate fell $1.88 to $35.40 a barrel after touching a low of $33.70. ICE February Brent, which was due to expire at the close of Thursday’s session fell 39 cents to $44.69 a barrel, while the March Brent contract lost 44 cents to $47.18.
Brent crude prices at one point traded at a record premium of $11.56 a barrel over the February WTI contract, with the US benchmark coming under pressure after crude stocks climbed to record levels at Cushing, Oklahoma, the key hub of America’s oil pipeline network. Crude stocks at Cushing, the delivery point for WTI, have reached 33m barrels, the highest level since records started in 2004. Local supply, demand and inventories in Cushing, have a large direct – and, according to many, excessive – impact on WTI prices, often overshadowing global trends.
Mars blend, an important US crude benchmark for the local physical market, surged to a premium of $3 a barrel above WTI, well beyond the traditional discount of $4-$5. Meanwhile, Light Louisiana Sweet, another US grade, traded at a multi-year premium of $9.90.
The surge in premiums for Mars and LLS highlighted that weak WTI prices are the result of local factors at Cushing, rather than poor overall demand in the US, traders said.
This rare weakness in WTI prices has proved much more severe than a previous episode in early 2007 and is causing hefty losses to long-only, passive inventors in commodities, which use Nymex contracts to gain exposure to energy prices.
It is also hindering some unsophisticated hedging strategies, which also rely on Nymex WTI futures.
The price spread between WTI for immediate delivery and forwards contracts also widened to extreme levels, deepening the market condition known as “contango”, where future prices are higher than spot prices.
The surge in inventories at Cushing also widened “time spreads” – the price difference for immediate delivery and forwards contracts. Nymex February WTI traded $7.30 a barrel below Nymex March WTI. The time-spread between March and April stood at a hefty $4.30 a barrel, triggering warnings from some traders that the WTI market was suffering a “contango bubble”.
www.ft.com/cms/s/0/517d...779fd2ac.html
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