Not actually very smnart Our Cormac over at Left Foot Forward. In fact, you might says he\’s showing himself to be ignorant.
Recent commodity price rises in the UK mean we need similar information here. For example, why is it that for the past year, UK oil prices – the Brent oil price – has been 10.7p a litre higher than the equivalent American traded oil price?
Hmm, gosh, you know, that is a toughie. So damn tough that even Wikipedia has the answer:
In February 2011, WTI was trading around $85/barrel while Brent was at $103/barrel. The reason that most cite for this anomaly is that Cushing had reached capacity, depressing the oil market in North America, which is centered on the WTI price. However, Brent is moving up in reaction to civil unrest in Egypt and across the Middle East. Since stockpiles at Cushing cannot be easily transported to the Gulf Coast for export, WTI crude is unable to be arbitraged in bringing the two back to parity.
Yes, you see, the WTI benchmark is based upon delivery to Cushing OK. And there\’s lots of delivery to Cushing but not many ways of transporting away from Cushing.
It\’s entirely unlike Cormac\’s suggestion that there\’s excessive speculation or arbitrage in London. Actually, there\’s not sufficient arbitrage in Cushing. Something which you would hope a reporter with a leading union fiunded blog might be aware of.
Doesn’t this mean that the benchmark US price is not actually that much use? And following on from that – that the gap between consumer prices in the US versus Europe is therefore narrower than the Brent/WTI spread would suggest?
The benchmark WTI price is artificially low, because there’s more crude oil than anyone wants in Oklahoma, and it’s hard to move it.
And 10.7p is more like the peak spread from last autumn than the average over the last year.