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Brent-WTI Spread Hits New All Time Record, May Double If Citi's Ed Morse Is Right
After last month, many funds got wiped out after the Brent-WTI spread collapsed from about $20 back to $14 in the span of days following the mid-June market swoon, the subsequent unprecedented rally driven purely by the ISM's inventory build up (which was massacred when last week's NFP confirmed aspirations about the end of the soft patch were proven to be simply naive if not outright moronic) has once again sent crude traders, who had now recalibrated their models to expect a spread in the mid-teens, upchucking (and in many cases negotiating margin calls with their prime brokers) after it just hit a fresh all time wide of $22.14, a nearly 100% move in just two weeks. The last time the max pain trade hit it caused such industry titans as John Arnold's Centaurus to gate, and do everything in their power to not lose LPs. What happens after the last two days move, will be seen shortly. Expect another spike in crude (and commodity) vol when the next big player throws in the towel. And if Citi's Ed Morse is right and Brent-WTI really does hit $40, the devastation in the commodity space will be unprecedented.
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The refiners will be singing "jimmy Crack corn and I don't care..."
Peak bullshit?
you just described your head
The insults! They hurt so much!
Production peaked in 2005. It has formed a plateau since then, and now, it appears production is falling. The peak is in.
http://www.youtube.com/watch?v=wYuLjGQQ-jg
Peak Lite Sweet Crude.. Peak Affordable Oil.. Peak Oil that you can afford to burn!
Assuming small size of the commodity market, small stock and neverending demand in case of panic, I'd say we are set for a huge volatility in the next few years.
Brent and WTI...the size correlation is like comparing an elephant to a shrew.
A shrew?
Thats right, dumbass.
What is shrew sheepdog one?
Damn!!
http://en.wikipedia.org/wiki/File:ShrewKatePetrucio.jpg
http://en.wikipedia.org/wiki/Shrew
why not post a picture mr entitlement?
Your avatar is an excellent example of one.
my avatar is of a manatee
Nope.
It's definitely a Southern Short-tailed Shrew. No doubt about it.
I've know a few split-tailed shrews. Don't get me started.
You know, pound for pound voles are the most vicious animal on earth.
Are you suggesting we stuff coppertop and some voles in a canvas bag, seal it and then throw it in the water?
Because I'm not.
I would never be cruel to a vole. Just insert them and let them eat their way out.
I dunno Rodent, my wife ranks right up there, too.
Not likely.
Manatees are pretty inoffensive creatures.
So can't be that now, can it. Process of elimination. Mamatees are cute, too.
We need to protect them.
They do seem to be slow, stupid and way too likely to commit suicide by watercraft.
Sever issue.
SheepDog, moments ago I was whining (in another thread) about the strange movements in gold & silver. ¨Malikai¨ told me to look at the crudes.
Yow! $22 spread and growing!
Manipulation, bitchez!
100% manipulated markets, while we try to guess which side to get in on to beat the millisecond traders.
Better off in Vegas betting on black or red! At least there scantilly clad waitresses bring free drinks, and plates of peas....or something.
It's all relative to the growing insanity. A $10 spread and an insanity level of '50' is equal to a $20 spread and an insanity level of '100'.
Time to pull the covers over your head when the insanity level hits "Mad Max".
I gots my canned peas, CD!
I'm glad someone around here knows what he's doing because I sure as hell don't.
However, now I understand why my grandfather always told me to mind my Peas & Q's. :)
http://en.wikipedia.org/wiki/Mind_your_Ps_and_Qs
Personal mythbuster. kind yet gentle
Cog Dis, you might be interested to know that everyone here in Peru openly knows that .gov lies, that the banks are weak & crooked and that YES, the cops will shoot.
I will have to ask to see if the term ¨cognitive dissonance¨ even exists down here...
It seems we Americans are first in everything except in recognizing our own slavery.
Hopefully we will soon be first in that category as well.
/sarcasm -- Everyone knows Americans are not first in anything any longer. Except debt. Go USA.
So it's true that all drones don't fly.
WTI trades about 900k lots on CME plus another 350k on ICE.
Brent is trading over a million lots a day.
Looks more like an elephant and another elephant.
I dont care about how much theyre HFT traded, whats the size of the oil?
Tell us more about the shrew and the elephant
Prove that you're NOT a program!
Trades are not relevant.
What matters is how much of each blend comes out of the ground.
Brent is the real stuff, useful and self-consuming, being a world currency, ready to deliver by signing off on the floating load.
Is this really so complex that everybody is trying to Da Vinci Code it to death? Or maybe just trying to generate some extra pocket change commissions? Or talking book?
I mean, like uh, got all that oil form Canada coming into Cushing which is the delivery point (and thus price reference) for WTI. Got a lot of folks trying to get the pipeline(s) closed between the tar sands and Cushing for "environmental concerns" and even attempting to apply such pressure through the State Department. (Yes, read that again.....)
Du-uh.....
I have heard from reliable sources that Cushing, OK - related shipping bottlenecks feed into the WTI-Brent spread. It is getting to be p-r-e-t-t-y wide, though.....
Absolutely....
There's a sense of fungibility if you will. But simple s/d imbalances relative to historical norms are the key. Historical norms. WTI/Brent used to be for years a fairly constant relationship, before the Canadian deluge...
Along with spillover, freight, capacity, sulphur, weight, etc., all feed in.
It is what it is. Too much in one place relative to too little in another when viewed from an historical perspective.
Yes. There's a lot of garbage oil floating around N. America.... Venezuela too.... the Eastern Hemisphere produces the "toot sweet" stuff that everybody wants.... lo-sulfur corn syrup crude (Libya, lol)
You can burn garbage to make electricity. Go TARSANDS!
Yes, but for the time being, the U.S. EPA has other ideas......
http://www.epa.gov/airquality/powerplanttoxics/pdfs/overviewfactsheet.pdf
There is also evidence that Brent is not being "cut". WTI is being created by blending heavy dirty Canadian crude with NGL. The result complies with API WTI definitoin but has less energy density. Less valuable to refiners.
I heard it costs $8 to load and ship WTI to LOOP by rail. If true, we have a risk-free $14 on that arb. I'm not sure what the Sept contract is going for, but if I was a rail guy, I'd be backing the fuckin train up.
$8 is a tad high.... the fact that it is not being arbed away tells me that what passes as WTI is not what the guy with the tanker at LOOP wants...
Good point. But I wasn't referring to shipping overseas. I was referring to just getting the oil to an unsaturated port. I think Baytown, St Charles, or Beaumont would do too, as I believe some of the refiners over there could probably deal with it. At this price divergence, someone's got to be able to find a use for it.
As I have said a number of times, if the crap that is being passed off as WTI when refined gives you ~$105 worth of product no one is going to ship it anywhere.
I don't know what price syncrude trades at currently, but I see numerous references which state syncrude is trading at a premium to WTI. Are you saying that bitumen is being cut with condensate to satisfy the WTI API/Sulphor requirements or that upgraded syncrude is being cut and sold off as WTI?
Here's one example:
http://www.bloomberg.com/news/2011-04-12/syncrude-premium-narrows-after-husky-boosts-rates-at-upgrader.html
A little confusion over terminology of which I must take some blame...I have loosely used Syncrude as a generic term to describe synthetic crude oil of which there are a number of forms.
WTI is based on sulphur content and API, not origin. I have heard anecdotal evidence from good sources that blending of low quality sour oil with NGL is occuring to satisfy WTI requirements. This is being done at the pipeline terminals.
The WTI discount that we are seeing can arise from any 1 (or more) of 3 reasons:
1) The quality of what is being delivered as WTI is not the same as it was historically.
2) Because of changes in infrastructure, there is an excess of supply in Cushing. There is something to this as the new Keystone ppl and the Bakken have added ~300,000 bpd over the past year.
3) The WTI contract is being manipulated by naked short selling backed by funds from the Fed...
I strongly believe that 1) is playing a role, 2) is a factor but the Bakken is high quality oil that moves by rail anyway thus the spread is arbable... 3) is also possible but to what end? The pump prices track Brent.
Ultimately, the price of a blend is dependent on the refining assays. Here is a cute little link
http://home.flash.net/~celjure/engineering/petroplan/assay/005.htm
unfortunately, the list is not complete
Good link BTW....
Good, let all the fund speculators eat peas!
BTW Wall St, Chap 7 may be an option....call Jude Law.
troll posts uselessly
OK, youve identified yourself nicely. Now what?
Sorry. You were discussing peas and I interrupted. Please continue
Anyone else get the feeling that there is only one "Troll" that posts? Same annoying gimmicks over and over and over...a troll by any other name...
Or maybe all trolls use the same writing style and voice.
The troll writing style and voice is now licensed under Creative Commons 2.0 and can be freely copied and disseminated......which unfortunately it is.
http://en.wikipedia.org/wiki/Creative_Commons
Great! A troll workshop; Just what we need.
wtf is this???? The 50 or so people on the planet that trade this deserve everything they get.
isn't this just saying that the USA will no longer require oil once the economy collapses and we return to the 1910s?
Probably pretty damn correct.
Not enough horses and not enough buggies.
Don't forget the whips.
Are there even any draft horses left in America outside of A. Busch (now owned by the Belgians who themselves might need them soon)?
Take your girlie to the movies if you can't make love at home (1919).....
http://www.turtleservices.com/girliemv.htm
It's simpler than that. Once the price rises enough, that $40 spread will fade into immateriality.
Obama gave the code words, Im investing in Band Aids and canned peas.
ok, I read the citi piece and the looked at the spread chart, is this bullish or bearish for crude? (apologies) but could someone kindly fill me in...
it depends, if you think heavy oil out of cushing is landlocked and it cost more to refine with less yield. then its bullish for brent. if you think they can build a pipeline to the gulf to get it to other heavy oil refineries in the next 1yr then in bullish for wti in about a year. either way near term according to author it bullish for brent
nice comments, thanks Gorilla
Tyler its tough ads today! On one side of the page it shows shiny gold and silver bars....the other says theres free live chat if youre broke at Jude Law. Wheres the peas!
why the obsession with jude law?
Why the obsession with SheepDog-One?
Tail of the shrew
WTF
Somebody suggested (yesterday?) that coppertop might be a ´bot...
Might be.
It contains it's own power source.
Coppertop...what's in a name? Hair color? Never seen that one before. How many masks are we allowed to have here?
Cass Sunstein and his disinformation troops says as many as they want.
http://en.wikipedia.org/wiki/Cass_Sunstein
I think it is a play on the Duracell battery.
Maybe the bunny, too.
Yes.
And a play on The Matrix where early in the movie Neo is called "copper top" because they just released him from being plugged into the human power plant. It was and is a derogatory swipe at the mindless humans who were used by the machine world as a power source.
Cheap oil for US, not for the Chinese.
What was it that refineries paid again?
Oh....
WTI/Nymex almost meaningless and is manipulated for the media consumption of the unschooled masses. Brent is what is really used worldwide. Follow the changes in the Brent price and see how much more closely it relates to the changes in the RBOB gas price.
Lost in all the noise has been 3 mm barrel drawdown at Cushing over the past few weeks...
http://media.agprofessional.com/images/TWIP77.jpg
The following is not a bad article, though I do not agree with everything
http://www.cattlenetwork.com/cattle-news/Cushing-inventories-taking-a-deeper-look-125164584.html
IMHO, the spread will tighten with WTI moving upwards. The refiners are salivating, look at the 321 crackspread, (which, of late, is highly correlated with the WTI-Brent spread)...
At the root of the spread is diesel demand: On a yield basis, Light sweet is superior to the Canadian Syncrude. The impact of Libya on the supply of diesel is still being felt and propagating through the system....
Excellent points Flak.
Refiners don't run CME WTI futures. They run real crude oil. LLS is trading at WTI +20 so there goes your 3:2:1
Boom. You're absolutly right. The crack spread looks great on paper but refiners are paying real-world prices.
Yes... they run real oil.... maybe I should have qualified it with those refiners that draw from Cushing... They are salivating with one caveat.
The real question is what fraction of what is called WTI is real light sweet crude and not Syncrude cut with NGL to satisfy the WTI Sulphur and API requirements. If the WTI price is reflecting the refinery output from this ersatz-WTI then all bets are off.... Those refiners getting their hands on the Bakken supply, only 400,000 bpd, are making out.
The info that you need to determine this is not public info....
The finance guys on ZH cannot understand.
This transcends money. This is barter territory. Refiners bid. Producers offer to the highest bidder. What NYMEX has to say about it won't impress either.
Libya was not 1 or 2% of supply; it was about 17% of supply of the stuff that matters. And every day it is shut in is a day other fields die. By the time Libya comes back online, with Gadaffi still in control, the flow provided may not exceed February.
In fact, if you're Gadaffi, you supply your allies at market rates. You inform Italy you would be happy to sell them oil, at Brent + $75, just to make sure there is a pure manifestation of justice in the transaction from the persepective of punishment for backstabbing.
I work for a small oil company in California and we're considering selling directly to refiners instead of a middle man because we're getting Nymex prices for our light, sweet oil whose turning around and selling it for a $12-15-20 premium to refiners.
My boss seems to think that refiners are really shady people to deal with directly though, is this true?
I sympathize... those producers of real light-sweet constrained to to Cushing are getting screwed...
Deal with the refinery directly but negotiate a different benchmark than WTI, eg use LLS....
Appreciate the input. Seems like you have experience in the oil market?
Been a student many years....
How will you ship your product separately? Via boat to Asia? Rail cross-country? Long Beach obviously won't take it unless they make money on it. No simple answers for you, you'll get burned on shipping especially.
We're small enough (<1000 barrels a day) that we transport by truck. We pay transportation costs with the middle man anyway, so it wouldn't be a big step up to pay for transportation to a refinery. Sure the transportation distance is going to go up, but I doubt it's going to be anywhere near the > $10 margin the middle man is taking off the top.
The whipsaw today in the spread killed me. 19.40 to 21.70 in about an hour on September.... don't know what happened but it had all of the signs of limits being taken out on the way back up.
If there ever is a spread exceeding $30 then I'll be on the other side of that one. It's beyond irrational to believe that market forces wouldn't adjust and move supply given a 30%+ margin difference. When Brent commands over $5 more than LLS, then that's when the top is in.
this brenti-WTI spread is another fresh major manipulation of commodity market by banksters. If there would be any free market it should be opposite - WTI should be more expensive than brent!
Because it's sweeter and less available.
Hey ... after centuries of normal trade and pricing mysterious "spread" just started few months ago and "... is here to stay according to nomuras, citis, GSs etc" ???????????
Anyhow , some companies, gov and selected banksters will earn monster profits on this megascam. May also be a preparation for politicians "voting" for higher US corporate-oil taxes.
Just an additional tax on euroasian consumers
Do some homework on what "Brent" means and what "WTI" means.
Brent comes mostly from the North Sea. WTI . . . is not altogether from West Texas. WTI is being created from heavier, sour oil by adding NGLs and pretending there is no energy density loss.
WTI, of whatever composition, is not available for shipping out of the US to high demand growth locales in Asia. Therefore, the primary source of demand/consumption "can't use WTI". That phrase has multiple meanings. It means there is less demand for it. No point in demanding something you can't have.
Overall, the thing to understand is that the US imports most of its oil consumption, and the refineries serving that consumption don't pay WTI prices for their raw material.
Ok few weeks later spread will be 30-40USD.
Do you really believe that your arguments will justify such price difference?
"WTI" (whatever it is now, before was good decent quality of crude certainly better than brent) not available for shipping outside US? Cmon...
So who's allowed to trade on "WTI" prices and what's actually traded at "WTI" prices?
I suggest you educate yourself about oil a bit before making a fool of yourself online... You strike me as the type of ignoramus that would buy hook-line-and-sinker the crap Sarah Palin spouts about energy...
Care to elaborate?
Anyone that thinks that "Drill, Baby, Drill" is a solution to the problem of peak oil is guilty as charged...
If we had 1/2 a brain, the methanol economy would be online NOW.
The whipsaw today in the spread killed me. 19.40 to 21.70 in about an hour on September.... don't know what happened but it had all of the signs of limits being taken out on the way back up.
If there ever is a spread exceeding $30 then I'll be on the other side of that one. It's beyond irrational to believe that market forces wouldn't adjust and move supply given a 30%+ margin difference. When Brent commands over $5 more than LLS, then that's when the top is in.
Yes, just wait until we wake up some morning and are told that there is no SPR because the gov has been supplementing production all along. Sounds a little like gold in Fort Knox....no?
The relative sizes of the underlying physical don't make much of a difference. The cause of the spread is attributable to the physical delivery of WTI under the Nymex contract. With Capline flowing into Cushing, storage capacity is overwhelmed. Traders don't want to run the risk of taking delivery at Cushing. I am not sure how far the spread can go (I'll check) but it may be pretty wide since failing to accept delivery is a serious issue.
Not as simple as that...see the link I posted for Cushing inventories and comments about what is being passed off as WTI.