Nasdaq wavers, Dow, S&P 500 slip as oil prices ease after spiking above $100
International benchmark Brent (BZ=F) and US benchmark West Texas Intermediate (WTI) crude oil (CL=F) futures rose as high as $119 in the minutes after the oil futures market reopened and traded at the same price point in the evening.
The fact that the world’s two main pricing criteria started to be traded at parity pointed out an unusual market dynamic.
As a general rule, WTI generally trades at a discount of about $3 to $7 to Brent. The spread reflects differences in logistics and market access.
Brent is priced relative to oil produced in the North Sea and represents the global market for seaborne crude oil in barrels that can be easily loaded onto tankers and shipped to major refining centers in Europe and Asia. Brent generally commands a premium because it reflects globally traded supply.
WTI, on the other hand, is priced at storage centers in Cushing, Okla. While the crude itself is of high quality, the pricing point is landlocked and more closely tied to the North American pipeline system. This logistics constraint generally causes WTI to trade slightly cheaper than Brent.
The fact that the two benchmarks are trading at the same price usually signals that global supply risks are pushing prices higher overall, exceeding Brent’s normal logistics premium. Buyers who primarily booked Brent shipments are now looking to WTI for backfill; Brent, however, is not currently available – it is currently locked in the Persian Gulf behind the Strait of Hormuz, where shipments have fallen to near zero as the conflict in Iran continues.
In other words: when WTI is trading at the same level as Brent, this is a clear sign that the global oil market is under major stress.
