Brent Crude to be the international standard, US gasoline prices will rise
By Paul A. Ebeling, Jnr. | November 21, 2012 6:40 AM EST
ICE, LUV, DAL
The reign of West Texas Intermediate WTI light sweet crude as the international standard for Crude Oil pricing has been eroding for a few years. It is now certain that WTI will be replaced in Y 2013 by Brent Crude as the international standard.
The S&P GSCI commodities index has already raised its weighting on Brent to 22.34% of the index beginning in January, and lowered the weighting of WTI from nearly 31% to 24.71%. The reason: there are more Brent bbls available. Higher volume means more liquidity and more opportunities for trading.
The problem with WTI is that it is landlocked within the US, and pricing is settled at Cushing, Oklahoma, where there is limited pipeline availability to move WTI.
Virtually no WTI is loaded on tankers for sale anywhere else in the world, and notwithstanding recent projections from the International Energy Agency, it is not likely that significant volumes of WTI will ever be sold abroad.
The situation is even more lopsided in futures, where Brent futures traded on the InterContinental Exchange (NYSE:ICE) now outnumber WTI futures traded on the Nymex by about 30,000 contracts a day. The combined volumes on both exchanges still favors WTI, but Brent is rapidly closing the gap according to the data.
The options market is where Brent has made its largest gains although it still trails WTI by a substantial margin, both Southwest Airlines Co (NYSE: LUV) and Delta Air Lines Co. (NYSE: DAL) have switched to Brent to hedge their exposure to jet fuel prices.
Brent trades today at a spread of about $23 bbl higher than WTI.
That gap, due in large part to increased production in the US and a lack of infrastructure to move WTI out of the Midwest, is expected to close with WTI prices rising to meet Brent pricing.
Crude Oil producers will welcome the shift, refiners will not, and US drivers will end up paying higher prices at the pump. It may take a while for this all to shake out, but the 1st big step has already been taken.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
Copyright Live Trading News All rights reserved.
Most Popular Slideshows
- Taylor Swift Named Forbes' Second Highest Paid Country Musician [PHOTOS]
- Forever Lost: Indescribable Anguish for Malaysia Airlines MH17 Families, Remains of Some Victims May Never Be Found (PHOTOS)
- Global Aviation Accidents: UN to Form Safety Task Force, Gov'ts Should Share Intelligence Info to Avert Future Incidents on Flying Over Warzones (PHOTOS)
- PageSix: Beyonce & Jay Z Union is Not About Love, All About Business & the Brand
Join the Conversation
- Samsung Galaxy S5 Alpha Leaks Online: Release Date, Five Features to Wait for New Smart Phone
- Freshly Leaked Apple iPad Air 2 Cases Confirm Touch ID Sensor; Release Date, Limited Specs and Price Listed
- Photos of Motorola Moto X+1 Prototype and Specs Leak Online, Release Date, Four Fresh Features Revealed
- Moto X Android 4.4.4 KitKat Update Guide: Schedule and How to Install
- Sony Xperia Z3: Release Date, Five Features to Expect from New Android Smart Phone
- Top Surprising Features Of iOS 8
- Top 4 Reasons Why iPhone 6 Will Hit Big Soon After its Sept 2014 Release Date