The Hindu Business Line : Brent crude quotes $5 above WTI

Mumbai May 15 The partial shutdown of North America's largest refinery, Valero, in the US, has resulted in Brent crude quoting at a $5 premium over WTI (West Texas Intermediate) crude price of $62 a barrel.

Though WTI is used mainly in the US, it is looked upon as a key benchmark for accurately reflecting supply and demand.

On Tuesday, WTI was quoted on NYMEX at $62 per barrel, while Brent crude closed at $67 per barrel on the LME.

"The trend is expected to continue for the next six months till the technical snag at the Valero refinery is set right.

It is just a trading blip, which will correct on its own," said Mr Arvind Pal Singh, Assistant Vice-President, NCDEX.

Unusual weakness

The premium is likely to push up Brent crude popularity and it may emerge as a global benchmark. "Increase in volatility of WTI has raised the hedging risk of investors, prompting many to trade in Brent and other alternatives.

The unusual weakness of WTI to other international crude has raised questions about its viability as a key benchmark. However, we have to wait till the shutdown in the Valero refinery is lifted to gauge the impact," said an analyst.

Open interest - the number of trading positions that have not been closed - has been rising in Brent, but has flattened out in US crude, although NYMEX remains a bigger exchange. WTI crude oil is of high quality and most suitable for refining large quantity of gasoline.

Its API gravity is 39.6 degrees and contains about 0.24 per cent of sulfur (often referred to as "light sweet" crude oil). This characteristics along with location, makes it an ideal crude to be refined in the US, the largest gasoline consuming country.

Daily use

WTI is used mainly to price North American crude and some US imports. Asia, Europe, West Asia and Africa refineries use over 20 million barrels a day of Brent crude.

"Although technically WTI is delivered through NYMEX's crude futures contract, it is synonymous with the NYMEX benchmark. Its settlement point is Cushing, Oklahoma, a pipeline hub.

Cushing has been drowning in crude supplies due to refinery outages and maintenance in parts of the US and rising oil output in western Canada, helping keep WTI lower than Brent," said Mr Singh.

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