The price gap between the world's two leading oil benchmarks returned to near record highs Thursday as fresh supply disruptions propped up European benchmark Brent crude--the marker for more than half the world's oil.
The price gap between the world's two leading oil benchmarks returned to
near record highs Thursday as fresh supply disruptions propped up European
benchmark Brent crude--the marker for more than half the world's oil.
In the early part of the week, Brent consistently underperformed
U.S.
oil
benchmark West Texas Intermediate in percentage terms, causing the spread to
retreat from the highs hit in the previous week.
Analysts had predicted a sharper drop in Brent crude than in
U.S.
crude
after Libyan rebels stormed the capital
Tripoli
over
the weekend, raising hopes that crucial oil exports could finally resume from
the North African country. A sharper drop in Brent prices would have narrowed
the spread between the two futures contracts.
But fading hopes of a speedy capture of Col. Moammar Gadhafi as well as fresh
supply disruptions in key oil producer
Nigeria
and
ongoing issues in the
North Sea
have only further increased
Brent's premium to WTI.
"The market may have prematurely priced in a rapid return of Libyan oil,
depressing Brent relative to WTI and is currently adjusting while waiting to
have more clarity on timing and quantity," said Harry Tchilinguirian, head
of commodity strategy at BNP Paribas in
London
.
Since the beginning of the year, supply bottlenecks at WTI's delivery point at
Cushing
Okla.
and
disruptions in
Europe
have pushed the two futures
contacts apart, with the difference between the two contracts reaching an
all-time high of more than $26 a barrel Aug. 19.
Historically, the two oil grades have traded within $1 to $2 a barrel of each
other.
The unusual widening of the price gap has brought joy to West Coast refiners
able to benefit from comparatively cheap WTI, but has proved disastrous for
companies using the
U.S.
benchmark to hedge their exposure to oil and its products globally.
The big spread in prices has also raised questions over which of the two crudes
is the more accurate global oil benchmark.
In addition to the loss of some 1.3 million barrels of Libyan crude exports,
traders are facing ongoing supply disruptions in the
North
Sea
, where prolonged maintenance to major oil fields has resulted in delays
and cancellations to several crude cargoes since May. Most of the maintenance
was meant to be completed by the end of August, but traders have reported
continued supply issues into September.
Furthermore, Royal Dutch Shell PLC (RDSB.LN) Tuesday said some of its Nigerian
crude supplies would be disrupted for the next two months due to several
incidences of pipeline sabotage.
Bonny Light, the grade of crude that has been affected in
Nigeria
, is
of a similar quality to the type of oil
Libya
usually exports and is highly prized by refiners on both sides of the
Atlantic
.
At 1128 GMT Brent crude's premium to WTI stood at $24.98 a barrel.
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