Brent-WTI spread (The Energy Bulletin)

by Stuart Staniford

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Colin Barr at Fortune Magazine has some interesting discussion of the WTI-Brent spread (this is the difference in prices between the basic spot price of West Texas blend oil in Cushing Oklahoma, and the price of the Brent contract in Europe).

So how do you get $4 gas when oil is just $85? The answer starts with some unprecedented behavior in global oil markets, where the benchmark European oil standard, known as Brent crude, is trading at a $20-a-barrel premium to the U.S. benchmark, the West Texas Intermediate futures contract that trades on Nymex. The two typically trade within a few dollars of one another.

Increased flows from Canadian tar sands and the Bakken shale fields in the northern Great Plains have sent oil flooding into Cushing, Okla., where the WTI crude contract is priced. But because pipelines are set to run into Cushing, not out, much of that oil is going into storage rather than into refineries. Oil stockpiles in Cushing hit their highest level in seven years last month.

The glut has disconnected the widely quoted WTI market from a sobering energy market reality. "Cushing isn't worth looking at," says Steve Kopits of energy forecaster Douglas Westwood in New York

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