[joewp]

Thanks Mr. Bill, that sounds very plausible. Things are getting funny in the oil pits, like this Brent/WTI inversion and last month's April/March spread skyrocketing to $1.60 near expiration.

I have to be more alert for these trading opportunities.

[MrBill]

$this->bbcode_second_pass_quote('joewp', 'T')hanks Mr. Bill, that sounds very plausible. Things are getting funny in the oil pits, like this Brent/WTI inversion and last month's April/March spread skyrocketing to $1.60 near expiration.

I have to be more alert for these trading opportunities.

[MrBill]

Brent has gone from a 84 cent premium on Friday to a 50 cent discount today, so back to where it belongs. Easy money to be had. $1.34 for a few days work on 10 contracts would have netted $13.400 but I am simply too lazy. So much for Adam Smith. ; - )

[joewp]

$this->bbcode_second_pass_quote('MrBill', 'B')rent has gone from a 84 cent premium on Friday to a 50 cent discount today, so back to where it belongs. Easy money to be had. $1.34 for a few days work on 10 contracts would have netted $13.400 but I am simply too lazy. So much for Adam Smith. ; - )

[pup55]

I always thought that in addition to the API number there was a shipping issue. WTI is FOB Cushing, and Brent is FOB Sullorn Voe, wherever that is, so the difference is typically the approximate shipping cost differential to a typical refinery in North America somewhere.

Maybe I am wrong on this.

Anyway the next time this inversion happens feel free to bump this thread up so we can watch the fun.

WTI contract specification

Brent Crude Contract Specification

[joewp]

$this->bbcode_second_pass_quote('pup55', '
')
Anyway the next time this inversion happens feel free to bump this thread up so we can watch the fun.

[MrBill]

$this->bbcode_second_pass_quote('joewp', '')$this->bbcode_second_pass_quote('pup55', '
')
Anyway the next time this inversion happens feel free to bump this thread up so we can watch the fun.

[MrBill]

Here are Goldman Sachs comments on the shape of the forward curve in the WTI vs. the Brent. Have seen WTI at a 1.00 discount to Brent last week. Yesterday it narrowed in to -60 cents. With April Brent expiring this week, probably will not come back par again. The May contracts are normal (i.e. WTi at a premium).
$this->bbcode_second_pass_quote('', ' ')4 Goldman Sachs Global Commodity Research - March 13, 2006
We believe that the especially large surplus in the US Mid-Continent explains why WTI has modestly traded through full carry. In contrast, crudes that are not subject to specific issues associated with a landlocked delivery point such as Brent are trading in line with full carry (see Exhibits 4 and 5).

In general, inventories outside of the United States are less amply supplied, which is reflected in much flatter Brent and Dubai crude oil forward curves (see Exhibits 6 and 7). The oversupply in the United States relative to the rest of the world is so extreme that front-month Brent is now trading at a modest premium to WTI, the reverse of the normal relationship.
Exhibit 6: US inventories have built while inventories
elsewhere have declined

Going forward, we continue to believe that robust oil demand growth consistent with further expected expansion in the global economy will likely push the global oil market into deficit this year, which should begin to reduce the relatively high level of oil inventories concentrated in the US market (see Exhibit .

We expect these inventory draws to generate upward price pressure on near-dated prices that should lessen the contango in the crude oil forward curve. In addition, given the current economic outlook, speculative long positions in the oil markets according to the Commodity Futures Trading Commission (CFTC) are substantially smaller than what would be expected (see Exhibits 9 and 10). As a result, the potential extension of investor length commensurate with growth prospects has the potential to generate upward price pressure in the oil complex. Accordingly, we continue to believe that WTI crude oil prices should move above $70/bbl by yearend and maintain our 10% energy total returns forecast as well as our recommendation for an overweight allocation to energy.

[joewp]

That's very interesting. All the crude that's been accumulated from refinery maintenance and stocking up for making gasoline depressed WTI for a while.

Also, they expect WTI over $70 by the end of the year.... How much over $70, Mr. Goldman?

[Gvil]

Brent over 70$ for the firs time in history...

[Sleepybag]

Energy Prices
Another milestone. We reached 70 dollar Brent. First time in history. Let's celebrate!

[leal]

Party?

[firestarter]

At about the same time NYMEX crude had a selloff which dropped the price from $69.45 to $68 in the space of about a half hour. Easter profit taking, I suppose.

[firestarter]

[Concerned]

$this->bbcode_second_pass_quote('Sleepybag', '[')url=http://www.bloomberg.com/markets/commodities/energyprices.html]Energy Prices[/url]
Another milestone. We reached 70 dollar Brent. First time in history. Let's celebrate!

[miraculix]

Iran military trike crude $90/barrel??

Make this north of $120/barrel

[PWALPOCO]

I think ther are two underlying factors to the price going on here.

The first is price creep. Its like a gradual thing , the price is just ticking up slowly. I think this is the bit where the demand/supply tightness is working and is where the price settles after some kind of ...

"Event" led price. Things like the Iranian annoucement about enrichment , or the failed terror attack on the Saudi oil facility.

Once the EVENT is over , the price settles back to the creeping underlying price which us peak oilers believe is caused by the tight market.

I think the underlying price has been found to match the line of the 200 day moving average with the spikes rising off that whenever "something" happens.

Alarmingly , nothing has really actually happened yet but here we are near the record. The spiked price reflects things that "might be" , rather than a real problem (like Iran pulling the plug on oil supply for example).

The future will either hold even more price creep .... or "something" will happen to drive prices higher. I dont see a price fall anytime soon , unless someone quickly invents safe desktop cold fusion generators !

Paul

[kochevnik]

Dont forget plain old inflation - currently running at 4 - 8 % a year (depending on how you count it).

[satjeet]

so i go to my local stone landscape dealer for bluestone and the price has jumped 60% in one year don't recall the NYT talking of this oh well and he goes like everything has jumped and all because of fuel increases and we think we live well or so my mother used to say

[parisjom]

Good day all,

I have been studying the WTI/brent spread for some time and it looks like there are some quite decent opportunities there.

As we know, WTI is a higher quality oil, and therefore is justifiably priced higher than Brent (ticker "COIL" on ICE). There are some periods though when WTI is priced the same as Brent, and has even been priced lower than Brent.

Having charted some recent data, several months of end of day closing prices, I see that the recent 4 month rand of the WTI-Brent spread is -0.29 to +2.75 ... the extremes of the range being very rare and never holding for any prolonged period of time.

One thing in particulat that I think I have noticed is that the WTI-Brent spread is almost always greatest on the front month contracts. Can anyone confirm this ? ... and if so, why does this phenomena happen? If this observation is indeed statisticaly significant, could we not then simply buy the WTI, sell the Brent a few months out (when the WTI-Brent spread is relatively tight), and hold the position until near expiry ?

At first I briefly thought that the contango might have something to do with it ... however, I tend to discard this idea because the contango/backwardation should (I think) play into both the WTI & Brent contracts in a relatively equal manner.... am I mistaken ?

Any answers, suggestions, criticism or public stoning welcome.

Also, if you would like to share some data and/or other research with me (I can send you a simple excel sheet of research on the subject), please don't hesitate to e-mail me at justinmccarthy@noos.fr