WTI oil reasserts importance as Brent spread falls below $8

Benchmark Bingo!

Who said the WTI contract was dead as a global benchmark. Not me, that is for sure. The WTI once again is establishing itself as the global benchmark for oil as progress is being made in getting the infrastructure in place to take advantage of the US oil boom. The WTI/Brent oil spread fell below $8 for the first time in two years as the US is reestablishing itself not only as a major oil consumer but also as major world oil producer.

The Energy Information Administration data has shown that US oil production has risen to the highest level since 1992 and shows no sign of stopping. While the headline numbers from the Energy Information Weekly Status report were not that out of line with expectations, a drawdown in supply at Cushing, Okla.  and a report that the Seaway crude oil pipeline that is taking crude out of Cushing could move close to 295,000 barrels a day to the Gulf Coast is sending signals not only to the Brent market but to the world that the WTI is on its way to reflecting the best and worst of global oil prices. The US, a major consumer and a major user and soon to be a major exporter, has everything you need to get a handle of the global energy mood.

Oil over all is getting some support from Iraq's crude exports via a pipeline to Turkey being halted because of sabotage bombing and some people trying to steal oil.

Of course benchmarks always raise controversy. The FT reports "Key energy companies, trade houses and banks alike have halted submission of European natural gas quotes to price-reporting agencies, reports the Financial Times Thursday, highlighting issues about the benchmarks that underpin large sums of money in trading and household energy bills. According to the report, officials at Norway's Statoil ASA (STO)--the second-largest supplier of natural gas to Europe--along with two top Swiss commodity trading houses and several banks, said they have stopped sharing gas price data with price reporting agencies Platts, Argus and Icis Heren. The price-reporting agencies confirmed a drop off in data submission, according to the report. Such agencies are responsible for publishing daily benchmark assessments of European hub prices, like the U.K.'s NBP and Holland's TTF, based on conversations with companies, says the report.”

Natural Gas has cracked after last week's much larger than expected injection. Of course in recent weeks hedge funds have embraced this market and the question when it comes to natural gas is whether or not this market is a new safe haven commodity. For some time The Energy Report has talked about how the natural gas has acted as hedged against oil in many cases and has indeed taken on some safe haven characteristics.

Christine Buurma, of Bloomberg news, examines the issue in an article titled "Natural Gas Beating Gold for the Sleep-at-Night: Riskless Return” She writes” Natural gas, the worst-performing and most volatile commodity of the past decade amid a glut in supply, is replacing gold as a haven for commodity investors as the metal slumps. The heating and power-plant fuel produced the best risk- adjusted returns of 24 commodities in the Standard & Poor's GSCI index over the last 12 months, rebounding from the worst ranking in the prior 10 years, the Bloomberg riskless return ranking shows. Gold, the decade's top performer, and silver tumbled as a stock market rally and a rising dollar curbed demand for the metals as a refuge.”

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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