Galen Stops look at how the price disconnect between WTI and Brent has opened the door for a new oil benchmark.
Brent and West Texas Intermediate used to be the best of
partners. Wherever one went, the other soon followed in near
perfect harmony. However, in recent years ruptures have emerged
in the marriage and prices have diverged hurting end users and
prompting demand for a fragmentation of global oil benchmarks,
finds Galen Stops.
WTI is traded on the CME-owned Nymex exchange and is the
oldest and still most widely used oil benchmark around, with
the equivalent of approximately 500 million barrels being
traded per day off of it. The IntercontinentalExchange owned
Brent crude contract though has been attracting market share
away from WTI in recent years, a trend that accelerated rapidly
since 2008 and culminated in record volumes last month.
Since the launch of Brent on Ice, a number of different
market forces have converged to cause a tectonic shift in
global benchmarking. WTI has faced significant structural
challenges. An oversupply at the WTI repository at Cushing,
Oklahoma, where the Nymex contract is settled, caused prices to
plummet last year.
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