Brent-WTI price gap reaches $10/bbl as Cushing stocks increase

26 January 2011 17:40  [Source: ICIS news]

LONDON (ICIS)--The price gap between the Brent and WTI font-month crude futures contracts widened on Wednesday to more than $10/bbl, largely helped by this week’s stock figures from the US Energy Information Administration (EIA).

One of the main reasons for the widening gap between the two crude markets has been the difference between the two products' respective market structures.

In particular, high inventories at Cushing, Oklahoma the pricing point of WTI futures have been pushing down WTI prices.

The price of WTI weakened further on Wednesday when the EIA published its weekly stock data, which showed that stock levels at Cushing increased to 37.7m bbl during the week to 21 January, up by 900,000 bbl from the week before.

Since extra supplies at Cushing cannot be shipped out, additional volumes translate into lower WTI futures.

While March Brent had for most of Wednesday afternoon been registering gains of around $1.60/bbl from the previous closing price, WTI was trading marginally in positive territory, showing gains of around $0.30/bbl from the previous close.

At 16:35 GMT, March WTI was trading at $86.40/bbl, up $0.21/bbl. March Brent was trading at $96.93/bbl, up $1.68/bbl.

Another reason behind the widening price gap between WTI and Brent is the difference in demand in the two markets. While Brent can command extra demand from Asia, WTI is landlocked and relies on the US economy.

Moreover, the difference in the two markets' supply-demand dynamics has resulted in a steeper forward curve for WTI. This has led investors to switch from WTI to Brent, as they incur lower losses when the font-month contract expires.

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By: Giovanni Coiro
+44 20 8652 3214

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