Battle of the Benchmarks

“Brent is the global oil benchmark. Brent is used as the price benchmark for around two-thirds of the world’s traded oil. It reflects the fundamentals of the oil market on a global basis and we’re seeing Brent used as part of the pricing for oil throughout the world.”

The U.S. crude oil benchmark, known as West Texas Intermediate or WTI, has faced criticism over the past month, with claims it at times only reflects market conditions in the U.S. Midwest.

The contract slumped to a huge discount to Brent and other grades of oil earlier in May as stocks mounted up at the contract’s delivery point in Cushing, Oklahoma.

“I think WTI is a good reflector of U.S. fundamentals but even with respect to the U.S. market you have seen WTI become dislocated from other crude grades,” Peniket said.

“Recently LLS (Louisiana Light Sweet Crude Oil) has traded at a $5 premium to WTI and even Mars which is a sour crude grade traded at a premium. Clearly WTI is an important U.S. benchmark but I don’t think it reflects the fundamentals of the global oil market in the way that Brent reflects them.”

CME Group (CME.O), which runs the New York Mercantile Exchange where benchmark U.S. light crude oil primarily trades, gave a vigorous defense of WTI on Tuesday, arguing it was bolstered by increased transparency and better data.

Reuters