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