West Texas Oil Falters in Its Role As a Benchmark

Wall Street Journal ^ | April 23, 2007 | Ann Davis

[RWR8189]

The mighty Texas crude-oil benchmark -- the per-barrel price watched obsessively by the markets and quoted by the media -- has diverged so drastically from prices of other grades of crude in recent weeks that some market participants are calling it a "broken benchmark."

Several factors have combined to push the price of West Texas Intermediate crude oil -- used as the basis for the world's most widely traded energy contract -- dollars below other desirable, so-called light sweet crudes.

On Friday, for example, the bellwether oil contract on the New York Mercantile Exchange closed at $63.38 a barrel, nearly 5% less than the $66.49-a-barrel close of North Sea Brent crude, the London benchmark quoted on the ICE Futures exchange.

The disparity, which is partly rooted in structural changes in the energy markets -- including how and where oil is produced and shipped -- means the standard barrel of oil no longer has a straightforward price.

[thackney]

ping

means the standard barrel of oil no longer has a straightforward price

The claim that there used to be a straight foraward price for a barrel of oil is foolish. Crude oil is hardly a standard product and varies greatly in quality and price.

World Crude Oil Prices
http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm

[SAJ]

I can't get to the article, Hack, but the principal reason WTI is diverging from Brent is that, for several months, the Valero refinery nearest Cushing OK has been down, and that usage amounts to 170K bbl/day. Stocks have been building at Cushing, resulting in a large near-month contango.

This refinery is either just back online or will be next week; it should take about 5-7 weeks to normalise the supply situation.

For further details, consult Jim Williams at WTRG economics, www.wtrg.com. He's a very obliging chap and as good an energy analyst as there is. Will answer all your questions on this point.

[thackney]

Thanks for the info.

[NerdDad]

This sounds like one you should be commenting on since you’re pumping it out of the ground out there.

[razorback-bert]

My guess would be more North Sea being sold internationally, lower shipping to Europa.

I will try to get some info from an oil analyst.

[AFPhys]

I’d love a ping regarding what you discover from an analyst.

[CedarDave]

I’d love a ping regarding what you discover from an analyst.

Same here.

[razorback-bert]

She says it is no big deal, prices have been different for years.