Brent-WTI Surges To 2-Month Highs

Tyler Durden's picture

Both the spring maintenance period in the US (creating a 'glut' of WTI), Seaway pipeline, and tensions in the Middle East are exaggerating the Brent-WTI spread which traded back to two-month highs. In the last week or so the differential has surged from around $16 to over $22 as WTI fell and Brent prices surged. There is a great degree of seasonality in this shift (and typically the Spring maintenance period has ended within the next week) but Iranian sanctions remain at the forefront (as does the belief that Germany's growth will be the engine of European demand - especially if EUR drops). This year was 'different' in so much as WTI outperformed for the first few weeks - potentially on the back of the global rise in risk-assets thanks to global central bank largesse. It appears the oil market is hinting at some slowdown.

The Brent-WTI spread is highly seasonal (with Spring maintenance creating a buildup pre-refinery)... and is close to its typical seasonal peak..

 

but the divergence is dramatic (after a few weeks of Central bank largesse pumped assets up everywhere)...

 

Chart: Bloomberg

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yogibear's picture

As Goldman is predicting, oil to $150/barrel by summer. Couldn't have anything to do with the upcoming battle between with Iran and Israel?

SmallerGovNow2's picture

Naahh... nothing to see here, move along...

DaveyJones's picture

The more you think about it, the name Goldman is comically ironic

JPMorgan's picture

If that happens it will be the straw that breaks the camels back.

Peak oil biatch.

LawsofPhysics's picture

Another compression trade shaping up.  Tylers, what's the best play here considering central bank insanity?

Inthemix96's picture

Probably not to play is the best play physics,

Time has proven over and over again the little man gets his face ripped off, while the money changers win, sometimes 99 times out of 100.

Fucking shocked I tell you, shocked.

LawsofPhysics's picture

fair enough, but here are my thoughts for the day;

Unlike what has been happening from 2009-present, Brent will not collapse for potentially three reasons;

i) Iran/israel

ii) TPTB around the world are now fully committed to hyperinflation and the appearance that all economies are doing great, hence demand will not collapse as even more "make-work" projects come online.

iii)  Serious problems in the current state of oil field production, delivery, and discovery as many things in that supply chain need serious attention (according to my brother - 20+ years in the industry).  Lots of shit needs to be fixed/upgraded etc.  Unless of course we are going keep enriching Mr. Buffet's rail lines of course as one example.

Inthemix96's picture

Agreed,

And if it goes pair shaped between Iran/Israhell, it matters not what the price of oil is mate, cos' the chinese and ruskies will have some say in this matter, and we all lose.  2013 is shaping up to be the year this comes down.

I can feel it in me bones.  And it makes me physically sick thinking we could be entering something that wipes the slate completely clean.  For all of us.

Good luck physics.  And the rest of you, cos' we may just need it.

DaveyJones's picture

iv) The Beverly Hill Billies Oil is gone

DaveyJones's picture

ii) has always been my favorite because it's a self feeding idiotic "fix" that worsens everything. Vital raw resources deplete so the modern credit economy suffers so its fought with inflation that only increases those prices further. Oh wait, it helps the elite. Never mind 

Winston of Oceania's picture

"enriching Mr. Buffet's rail lines of course as one example"  payback is a real bitch when it takes the form of political favors on the taxpayers back. All that rail bound oil for just saying "tax us more"...

Flakmeister's picture

Yawn...more partisan crap...

So you would prefer that the Kochs make a killing exporting refined XL crude from Tax free export zone on the GC?

BTW, moving it by rail actually creates local jobs that cannot be outsourced....

scatterbrains's picture

Best  I can tell Brent is the throttle needle measuring the amount of poison gas filling the room where the fiat based soverigns play.. and is ignoring what any of the mouth pieces have to say or where they push this fiat vs. that fiat.

d_taco's picture

Small problems , some countries are not able to sell their oil anymore because there is only paper demand.

For example top premium oil from Nigeria. No market any more. Let see and wait till all get burned.

Flakmeister's picture

Do you just make shit up?

Exxon Qua force majeure to delay cargoes at least 4 days-traders

LONDON/ABUJA (Reuters) - The force majeure on Exxon Mobil's Qua Iboe grade in Nigeria will cause delays of four to eight days on affected cargoes, traders said on Friday.

Dr. Engali's picture

Long precious metals is the best play.

sablya's picture

Precious metals are lifeless...everyone expected them to respond to QE but they're doing nothing at all.  

LawsofPhysics's picture

It's about a safe store of value and nothing else.  A gram is gram is a gram, and has been a safe store for your wealth for six thousand years, even more so now as all paper promises are burning.  Anyone with any "excess" income should be interested in preserving some of that wealth.

Dr. Engali's picture

You don't grasp why you hold precious metals,and to your point I beg to differ:

 

 

 

http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=^gspc;range=20050103,20121231;compare=gld;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Whiteshadowmovement's picture

How I really wish for you guys that would be true. I think the more appropriate chart is gold vs. S&P from 1978-1998 doc, its a bit more in accordance with the Bernanks plans...

 

Also whats everyone doing with the windfall they made scooping up AAPL at $435? New car or...?

Whiteshadowmovement's picture

Also take a look at this:

 

http://faculty.gvsu.edu/aboufade/web/Dow1990Gold2000.pdf

 

Its 2 years out of date, but if you pencil in what gold did in that interim period, it continued to follow the trajectory almost exactly

Dr. Engali's picture

No way. There was a huge difference in interest rates during that time frame. Iterest rates were coming down during that time frame. There is no way that the Bernank can raise rates to bring down gold. Even if he started gold would move higher on fears that they would kill the dollar.

Whiteshadowmovement's picture

Forget rates doc, they will be kept low here from 2-4%. We are never going back to an era of the Fed raising rates, but gold will come down on its down, first with help from PPT to break the decade long bull trend, and then once the psychology of participants turns against it.

Remember doc, even though there was plenty of inflation from 78-98 (things cost a lot more in '98!) gold did absolutely nothing for investors.

Besides, I really hate to even ask this- but have you guys ever considered the idea that in the grand scheme of things the buying power for gold is very high right now?

Which would you rather have guys- 18 gold 1oz coins or a vintage stingray corvette?

http://cgi.ebay.com/ebaymotors/Chevrolet-Corvette-SEE-VIDEO-1963-corvett...

http://cgi.ebay.com/ebaymotors/Chevrolet-Corvette-STANDARD-1963-corvette...

Both hard assets, both will do well in inflation. Which seems like the better realtive bargain to you a large handful of gold or this steel sculpture that can move you around the world? I can tell you the supply demand picture in classic cars is at least fixed to the effect that supply goes down every year (there wont ever be a new ore of vintage corvettes discovered, on the contrary some are removed from circulation every year as a few are crashed, or parted out, or rust away, or are poorly restored).


DaveyJones's picture

can WE control the rates that WE borrow forever?

Bernank has backed himself into a corrupt incompetent corner

Whiteshadowmovement's picture

Not forever, but as long as you have the worlds largest military, other countries dont have shit to say about it

Panafrican Funktron Robot's picture

So we're going to attack Russia or China then?  No?  So we're going to prevent them from issuing a pan-pacific currency?  No?  Then the petrodollar is effectively dead already?  Yes?  Then what's the deal with the head in the sand "we got the biggest cock" mentality here?  

 

Whiteshadowmovement's picture

No, sorry disnt you get that memo: there are no plans to attack Russia or China unfortunately

Pan-pacific currency? Shit like that is 20 years away if at all!

Petrodollar effectively dead? Thats perhaps the largest hyperbole Ive ever heard here. With the exception of those banana republics like Iran and Venezuela, the rest of the world will continue to accept the petrodollar for a long, long, time

Citxmech's picture

Frankly, I'll take the gold and double down with some good farmland.  The collapse of EROEI will be the death of business as usual.

DaveyJones's picture

banked sunlight to current. Always enjoy your comments Citx

Citxmech's picture

The feeling is very mutual!

Thx Davey!  =]

Whiteshadowmovement's picture

I think you might be right about the farmland, in that it is a much better asset than gold. But even there I would be careful as bubbles have been known to form in farmland as well (in classic cars too, eg 1989)

Harbanger's picture

You should know that Central Banks all over the world are loading up on physical gold as part of the new monetary system.

Whiteshadowmovement's picture

I do know they are buying it, but it really doesnt indicate they are planning to go back to any sort of gold standard. The Bundesbank in Germany bought lots and lots of gold during its inception and although the D-mark was a strong currency, it still lost 90% of its value from 1950-2000

Harbanger's picture

Even if we don't go to a gold standard, it will serve as a bench mark for the strenght of new monetary units.  They're not buying it because it's shiny, it's money.  As far as bundesbank having bought lots of gold in the past, well I'm sure they're glad they did.  But having someone else hold it for you can be expensive, anything can happen from now to seven years. 

Whiteshadowmovement's picture

I really dont think gold is money, money is what taxes are paid in.

The Bundesbank may be glad it bouht gold, but if you held their cash as a German from 1950-2000 you would still have lost 90% of your purchasing power, so I dont see what good came out of it.

Gold reserves are just that, reserves of metal. From the start of the gold-exchange standard in the mid-1920s until 1952, about 26 years, the dollar's monetary base grew from $6B to $50B while the U.S. gold stockpile grew from 6,000 tons to more than 20,000 tons

DaveyJones's picture

a military is NOT an economy. In fact it can suck the life out of one. The world's largest military is only sustainable on surplus not the reverse

also, check the newspapers. Other countries ARE saying shit about it. Doing shit too

Like modern computers, Modern history moves a lot faster

Whiteshadowmovement's picture

Lol, "military is not an economy": dude, mail that shit back about 6000 years in time, the people of the past urgently need this advice!

DaveyJones's picture

do you really want to compare the scale of stupidity and complexity of economy with past and present? 

poor fella's picture

One thing I'll say about gold vs. cars, art, real estate, etc. is maintenance costs

In the long run, entropy is a bitch.

Whiteshadowmovement's picture

Gold is no different- you also either pay for storage and someone to guard it or you take your risks. That also costs money.

Besides, just like you guys often point out that ypu can technically make money leasing gold out, I loan my classic cars out for photo/commercial shoot and make about $1000 (plus insurance to 150% of the value) for a 3 day shoot. Its ample to cover costs.

My aunt has made more money collecting art over thr past 30 years than any of you could ever imagine making with gold but she has spent her life becoming an expert on art investment. She also gets fees from museums for exhibiting it that also more than cover the small costs involved in preserving paintings

Citxmech's picture

Running my gold doesn't take reliance on a diminishing resource (high octane gasoline) and I can put it in my pocket and walk away with it.

BTW  he point is not to have every last bit of capital tied up into PMs - it's to have enough to cya for whatever contingencies you may need.

CrashisOptimistic's picture

Silly me.  I thought this was an oil thread, per the article.  Not a gold thread.

Whiteshadowmovement's picture

Ill give you the idea that a small amount of gold is nicely portable, but storing 200k in gold will be just as expensive as storing a 200k classic car.

 

by the way, there is no theoretical reason to factor in a lot of gasoline if your intent is to simply store the car for future price appreciation in a vault. One tank of gas is enough to run it around the block every other week.

Harbanger's picture

Even at todays suppressed prices, 200k in gold is about the size of a 3 inch cube.

Whiteshadowmovement's picture

I doubt very many people will be burying such a cube in the yard or leave it in a home safe. It is the equivalent of over 120 oz gold coins. Ever check pricing on safety deposit boxes in really safe places like Switzerland- they arent cheap...

Citxmech's picture

Mine is free to store (it's all at the bottom of a lake somewhere after one of those damn ill-fated canoe trips!).

fonzannoon's picture

I think if the Bernak is content on letting equities stall out then he has a shot at keeping rates and gold in check. If equities keep climbing then rates are going to continue to climb as people slowly dump stock as they see losses on their bond holdings while watching the market climb. Ramping the market up while keeping rates low like this exposes the farce that the market is more and more. That is the wall that the Bernak runs into over time.

Whiteshadowmovement's picture

I dunno fonz, it worked pretty well throughout the 90's...

Te market doesnt have to double every year to sucker retail in, it just has to appreciate by the 8-10% on avg. theyre expecting.

Meanwhile gold is slammed and the Fed uses their arsenal of psychological weapons against it, while simultaneously allowing oil and other commodities a modest 2-3% yearly appreciation, with some years experiencing strong downside corrections.

Does it really sound all at far fetched?

fonzannoon's picture

The ten year was what...4%-7% throughout the 90's? If we are going for the nineties you have to factor that in. Otherwise we are not talking about the 90's. I think we would all agree that we ain't seeing 4-7% again.

There is a ton of money in bonds. If you (somehow) move up equities 8-10% avg from here on out then people will sell their bonds to get in on the rally. I would love to watch Bernanke's bald head sweating bullets as he justifies QE9 because he has to buy the stock being dumped on his head.

He is bald you know.

Whiteshadowmovement's picture

Fonz, I wish people would stp trying to apply the 90's situation for bonds, its incomparable.

People will only sell out of bonds if the yields go up. As long as the Bernank keeps yields low (buying 99% of bonds if he has to), nobodys gonna sell.

Besides he wants interest rates to look low and then make sure the banks clamp down on M2.

Also, as I pointed put to doc above, who cares about interest rates. Rates were going down throughout the 90's, not up, and still gold stagnated...

Highest price for Gold in 1990: $424
10 year: 8%

Highest price for Gold in 1998:$308
10 year: 5.5%

So where is the automatic correlation between gold and low interest rates you guys are talking about