Oil Markets Watch Brent-WTI Spread as Price Approaches $100: Survey

“Brent/WTI at $8,” noted JPMorgan Global Energy Strategy’s daily oil market commentary last Friday. “Amazing!”

Oil nerds know the score but to the uninitiated, JPM’s referring to the price differential between two benchmark crude standards.

London Brent crude is within striking distance of $100 a barrel milestone. It’s not there quite yet. As of 11.15 a.m. Singapore time this Tuesday, the quote is $97.52/barrel. Compare that with the front-month U.S. light, sweet crude WTI contract trading at $90.95/barrel – a $6.57/barrel discount to Brent.

Late last week, Brent’s premium over WTI was even higher. On Friday, the February delivery Brent crude contract expired pushing the Brent-WTI spread to over $8 a barrel. That’s the highest in 23 months, which is why JPM and the analyst community is taking note and delving deeper into its implications for the market.

Right now, the narrative is about how long such a wide disparity can last, is it an aberration or reflective of fundamentals? Brent and WTI have long slugged it out for the title of world crude oil benchmark. You could say it’s been the enduring grudge match in the market’s recent history. Critics of WTI as a global standard argue that the main delivery point for Nymex futures in Cushing, Oklahoma is too local, subject to distortions and not compatible with an internationally traded benchmark.

‘Cushing Syndrome’

They do have a point. Inventories there have risen 18 percent since early November — when TransCanada started a pipeline bringing Canadian supplies to the region — and stockpiles hit a record in February 2009. The Cushing delivery point in Oklahoma has such a propensity to clog up due to limited capacity and one-way crude flows, writes Izabella Kaminska in the Financial Times, that the market has even coined a term for it — “Cushing syndrome”. (more)