US Energy Agency Adopts Brent, Drops US Crude
7 Dec 2012
The U.S. government’s energy agency has adopted North Sea Brent crude as its benchmark for oil forecasts, dropping its domestic benchmark, saying it no longer reflects the price paid for oil by U.S. refineries.
The Energy Information Administration (EIA) said in its annual energy outlook it was abandoning West Texas Intermediate (WTI), traded on the New York Mercantile Exchange , and switching to Brent on the Inter Continental Exchange (ICE).
The move by the U.S. Department of Energy’s energy forecaster reflects a migration of large parts of the oil market to Brent and away from WTI over the last year.
“This change was made to better reflect the price refineries pay for imported light, sweet crude oil and takes into account the divergence of WTI prices from those of globally traded benchmark crudes such as Brent,” the EIA outlook said.
The agency said WTI prices had “diverged from other benchmark crude prices because of insufficient pipeline capacity to move crude oil to and from Cushing, Oklahoma”, the location at which WTI prices are quoted.
The real reason for the division is domestic US producers cannot legally sell their crude outside the USA, so the refiners have a captive market, and screw US royalty owners while also screwing the consumer.
If the market was allowed to be actually free, this would not happen and the overall price would go down.
And I wonder when this Cushing thing will finally change and bring still yet another change.
Trading futures is nothing but a bet on supply is it? It keeps prices in turmoil doesn’t it? It is a benefit for the few borne by the many isn’t it? Oil is not seasonal like agriculture commodities, it is not subject to the same uncertainties of weather and crop failure is it? What purpose does it serve but to serve the exchange and provide just another casino?
Since the first trial trades in 1985, designed to keep NYMEX alive after the demise of their primary trade in Maine Potatoes, the price frequency has increased and the price amplitude has swung wildly. Every blip in the world triggers another perception in oil supply threat and the world reels in response as a consequence.
Hooray for arbitrage and 28 year old gamblers everywhere!