Brent is an index for crude oil which represents the average daily prices of trading based on based on 21 days BFOF market in relevant delivery month. Most of the European and Asian market deliveries are based on Brent price index.
Whereas on the other hand West Texas Intermediate which is more popularly known as WTI is American benchmark for crude prices. Traditionally there always has been a gap or a spread between the two indices which is characterized by regional economic influence.
Brent Oil originates in the region of North Sea and is typically shipped to European and Asian markets on the other hand WTI is originated in Texas and southern Oklahoma and has North American continent as its supply base.
As very recent phenomenon crude prices in United States has started catching up with the prices in European and Asian markets. And this is happening in spite of the fact that the situation in Middle East is very volatile and unstable currently.
What experts feel, that main reason for drying up of this gap is due to arbitrage flows rather than any geopolitical reasons. If it would have been the geopolitical theory it should have pushed this gap even wider as supply concern grow coming out of current political scenario in entire Middle East region.
Traditionally European and Asian markets have been more vulnerable to any disturbances in Middle East reason. This vulnerability is account of two main reasons; First, that it may affect overall production of oil from this reason resulting is lesser availability and Secondly, due to concerns on safe movement of cargo from this region as this is the main route catering to both Asia and European regions.
In the background of what all is happening in Middle East, prices in WTI index were up by $ 3.5 per barrel as against only $ 1.5 per barrel increase in Brent prices. The spread or the premium which Brent had over WTI came down by more than 30% in just two trading sessions.
This price dynamics lead to reduced imports of crude into US especially on East and Gulf coast in recent weeks. The commercial stocks of crude in United States were reduced to 8 million barrels.
Now the question is will this WTI-Brent dry up or will it be pushed back again? Due to the above mentioned dynamics in United States there has been an oversupply and huge discounts offered on spot WTI deals.
This is going to push the WTI-Brent gap again, not only this, these discounted spot offers and reworked deals to supply WTI to African and Asian Markets could reverse the dynamics controlling WTI-Brent spread. We all will have to little longer to see where it all settles down.
