I’m trying to figure this out. Why is brent crude ~$100, while plain crude oil is ~$85? And where does this WTI fit into the picture? Is it all a quality thing, where crude is just the general supply, and brent/wti are a higher grade? Also, where do they come from?
Pretty elementary question I know, especially since I work in oil, but I need some clarity on this one.
Lighter (lower API gravity, or weight vs water) and sweeter (less sulfur) oils are easeier to process, thus lowering refinement costs. As a result they cost more. Brent and WTI are both versions of this, Brent from the North Sea, WTI from Texas. WTI is of slightly better quality than Brent. Brent oilfields peaked in the 90’s and production is dropping. Supply may end within 20 years by some estimates. WTI is becoming harder to extract also and there have been pipeline and US refinery issues in recent history as well that pushed some traders to use Brent as a preferred benchmark. All other crude (the majority of which is heavier, more sour and thus of lower grade) is benchmarked by primarily Brent, but also WTI.
http://en.wikipedia.org/wiki/Brent_Crude
http://en.wikipedia.org/wiki/West_Texas_Intermediate
Brent vs WTI and why Brent has been growing in popularity as a benchmark:
http://www.energyandcapital.com/resources/brent-vs-wti
Recently there was a small spike in Brent prices driven by a pending Norwegian labor lockout that would shut down production temporarily:
This year, Brent prices have been edging out WTI despite WTI’s quality advantage. Brent tends to be used by Europe (it’s from the region) and supply disruption from Libya has further created a supply / demand imbalance in Europe. In the US, new oil fields in Canada and Dakotas as well as use of natural gas have decreased supply / demand imbalances. Without a more efficient pipeline and refinery system, the price imbalance between Brent and WTI will persist as it remains somewhat cost inneffective to move WTI supplies to Europe.
I think you mean WTI when you say “plain” crude oil. WTI crude is trading at about $85. Anyway, here is a useful article that will help you understand this:
As a summary, WTI is the benchmark price for the US midwest, and Brent is the benchmark price for Europe. WTI is cheaper due to supply glut from the US and Canada. Brent crude oil is also more expensive when there is instability in the Middle East (Europe gets a higher proportion of their oil from there).
Interestingly, WTI crude is both lighter and sweeter than Brent crude. This would normally make WTI crude more expensive, but evidently it’s not enought to overcome the geographic issues.
As mentioned above, the price differential is related to increased inventory levels at the Cushing OK hub, which is the main storage and futures settlement location for the US market.
This price differential also pops up in other areas like retail gas prices, because east coast refineries tend to import oil that may be priced as brent as opposed to WTI. Also the directionality of pipelines constrict the flow of oil around the country, which is why companies are trying to reverse the flow direction. Most pipelines to OK flow to OK, not from. Due to the supply glut, companies now want to move the oil out of there. Also with the US trying to import more oil from Alberta, that increases the need for southbound pipelines from Canada to OK, then from OK to the gulf coast.
Ahh, I’d attempted some googling and that’s the part that had me confused. A lot of good information here though, thanks all.