Just in case there was any confusion, WTI may be at $40.72 per barrel and Brent at $46.24 per barrel but it doesn’t mean there’s major pricing discrepancy.
Brent’s front-month contract has already rolled into the February, while WTI rolls tonight on ICE and tomorrow on Nymex.
As the February contract is now the most active on WTI, we should really be comparing this contract versus the front-month Brent price. WTI February is currently trading around $45.15, so, as you can see, it’s a much better comparative and not quite the spread that is immediately evident.
Usually the differential between the two reaches near parity on rollover, but because of the large contango there is an element of forced-selling going on at the front end, which is depressing the price on WTI somewhat.
What’s also important to note, however, is that WTI is once again losing its sheen as the lead benchmark. Yesterday’s stock data showed that Cushing, the delivery point for WTI, is now very near full, which distorts the pricing on WTI due to its effective bottleneck (crude can only travel one way out of Cushing).
All this is nicely expained by JBC Energy in their morning note:
The US benchmark crude was particularly pressured by a 4.7 million barrel surge in stocks in Cushing, Oklahoma, where stocks are at their highest seasonal level in at least five years (27.5 million barrels). This pressured the January WTI contract with the spread between first and the second month widening to more than -$4.50 per barrel. In addition, the spread between WTI and Brent (FM) widened to -$5.47 per barrel. However, the spread between WTI and Brent (both February) was relatively narrow at -$92 cents per barrel. Meanwhile, Heating Oil lost 1.2%, while RBOB and Natural Gas were down 3.3% and 2%, respectively.
So there you go, you can soon expect Brent to be the lead benchmark for the oil markets once again.
Related links:
Oil’s falling – FT Alphaville
Profiting from a contango, not so easy – FT Alphaville