West Texas versus Brent - spread - why so large ?

[anonymous-user]

[redacted]

[munky]

http://www.marketoracle.co.uk/Article874.html

[ringram]

Some more detail here if its of any use

http://www.zerohedge.com/article/goldman-presents-...

[munky]

basically they are 2 different markets with their own supply & demand fundamentals. For example, on the supply side, the only factor that matters in WTI is how full the storage depot is at Cushing, Oklahoma (I believe) since that is the delivery point for the futures contracts. Cushing is a long way from the sea, so getting that oil to a tanker port and shipping it anywhere is going to involve a cost.

Brent is more indicative of the global oil market, and is affected by things like comments by OPEC members, Libya situation, what's going on in Nigeria, Chinese demand etc.

Also remember WTI and Brent are just benchmarks; there are dozens of types, grades of physical crude all with different prices e.g. Bonny Light, LLS etc.

[munky]

ringram said:

Some more detail here if its of any use

http://www.zerohedge.com/article/goldman-presents-...

some very true stuff in there

I tried to arb the "atlantic spread" once, in 2007 and it didn't work out too well, the spread just kept widening so had to close out at a manageable loss before it got worse. Oil can be counterintuitive.. eg. a US oil inventory report came out 2007 that on the face of it was bullish.. inventories had fallen. However, the WTI future fell. Reason - due to some refinery outages, refineries that are connected to Cushing, the Cushing inventory had actually risen. So that was an important lesson (for me, trying to trade a product i didn't fully understand). Oil is oil you might think, but no.

And in any case, "the markets can remain irrational longer than you or I can remain solvent" as somebody wise once said..

[hornet]

munky said:

Also remember WTI and Brent are just benchmarks; there are dozens of types, grades of physical crude all with different prices e.g. Bonny Light, LLS etc.

That's my understanding of it as well. There are numerous different grades from different fields, all with different qualities and characteristics. Brent tends to be used as a basis for pricing.

http://www.statoil.com/en/OurOperations/TradingPro...