What Is Cooking With Them Oil Prices?

Published on the Financial Times: Signs of shift away from WTI

• Signs of shift away from WTI
  By Javier Blas in London
  January 18 2009
  
  Oil traders are quietly pricing some of their deals away from the West Texas Intermediate contract, traditionally the world’s most important oil benchmark, as it is being distorted by record inventories at its landlocked delivery point.
  
  The move is a setback for the benchmark that since the launch of the Nymex WTI futures in the early 1980s has dominated physical and financial oil markets.
  
  The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed its value not only against other global benchmarks, such as Brent, but also against other domestic US crudes.
  
  Julius Walker, an oil market analyst at the International Energy Agency in Paris, said there was “anecdotal evidence” of traders moving away from WTI and “doing deals based on other US oil benchmarks”.
  
  The IEA monthly report said Brent was now “arguably more reflective of global oil market sentiment”. However, Bob Levin, managing director of market research at Nymex said that the WTI contract was performing “transparently”, reflecting a “loss in oil demand and sharply rising inventories”.
  
  “WTI is better reflecting global oil fundamentals than Brent,” Mr Levin said. “The oil industry has not abandoned the WTI contract and it has confidence in it.”
  
  Nevertheless, traders in London, New York and Houston confirmed a small number of transactions away from WTI after its price plunged last week to record discounts against other global and domestic benchmarks. The traders cautioned that the move could reverse if the WTI situation normalised. Lawrence Eagles, at JPMorgan, said any move away from WTI would face “strong resistance as none of the other US benchmarks have the price transparency of an exchange market”.
  
  Highlighting the price disconnection with the global market, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, last week plunged to an all-time discount of $11.73. The detachment hit the US market too, where Light Louisiana Sweet, jumped to a $9.50 premium, the highest in 18 years.
  
  Brent ended last week at $46.18 a barrel, well above WTI at $36.
  
  Walter Lukken, outgoing chairman of the Commodities Futures Trading Commission, told the FT the regulator was following “very closely” the WTI disconnection.
  
  This is not the first time WTI has diverged from other benchmarks, but the discrepancy is far more severe this time.

Well what's cooking with them oil prices?