Brent replacing WTI as benchmark crude?

Sam Fletcher
OGJ Senior Writer

The Dow Jones-UBS Commodity Index said Apr. 7 North Sea Brent crude oil “will be specifically considered for the index” beginning in 2012. This is the second largest commodity index after the S&P Goldman Sachs Commodity Index (GSCI) and is for now only invested in West Texas Intermediate futures.

“With the increasing liquidity in Brent futures, we can also expect the S&P GSCI [published by Standard & Poor’s] to increase further its crude allocation to Brent,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Hence the reweighing of those two indices from WTI to Brent should put some significant pressure on the first quarter values for WTI-Brent at the start of 2012, with some prepositioning likely before the actual roll-date.”

At KBC Energy Economics, a division of KBC Advanced Technologies PLC, analysts also noted the ICE Brent crude contract in Britain is about to topple US benchmark light crudes on the New York Mercantile Exchange as the most traded crude futures contract. “Since the start of the uprising in Libya on Feb. 15, speculative length in NYMEX crude futures has risen by 60% to 262,000 contracts at Mar. 29,” they said. “Even the laggardly NYMEX crude futures contract has since risen…so net speculative length is likely to have hit a new all-time high.”

KBC analysts claimed, “The flood of money into oil futures and other asset classes has been encouraged by ultra-loose monetary policies. Net investment into US commodity indices rose above $300 billion for the first time in February, with an increase of some 15-20% over the preceding 3 months. The strong upward trend is likely to continue through June with the US Federal Reserve expected to complete its $600 billion stimulus program under the second round of quantitative easing. Only about one-third of the implied geopolitical risk premium in current prices is discounted by December 2012 when the ICE Brent contract is priced at $114.49/bbl. This would imply a protracted period of high oil prices for which there is no precedent.”

Oil prices rose Apr. 7, with the May contract for benchmark US light, sweet crudes up $1.47 to $110.30/bbl on NYMEX and the May IPE contract for North Sea Brent crude was up 37¢ to $122.67/bbl, after the European Central Bank announced a 0.25% hike in interest rates. “The widely expected hike is unlikely to derail the upward trend in the oil price, with the US Federal Reserve System still firmly on the path of accommodative monetary policy,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

In addition, the ECB, “while not committing yet to it, is leaving open the possibility of further increases in rates,” said Olivier Jakob at Petromatrix, Zug, Switzerland. This provided some support to the euro-dollar exchange rate and by default to commodities.

High prices destroy demand
KBC analysts said, “Not only will Europe’s ongoing debt problems and the European Central Bank’s decision to hike interest rates for the first time since 2008 understandably dampen European consumers’ appetite for oil, but also the persistently inflated level of oil prices will increasingly deter all but the most robust consumption trends.”

They noted, “The price of front-month Brent crude settled close to $115/bbl on most trading days in March except for a short-lived slump to below $110/bbl in the aftermath of the massive earthquake in Japan. However, over the past week, the contract has moved up sharply…. More than $7/bbl has been added in just five trading sessions and, more importantly, resistance has been broken at $120/bbl.”

The primary driver of higher oil prices “is a growing perception in the market that the conflict in Libya might not end any time soon.” KCB analysts also said, “Oil prices have been driven higher by rising geopolitical concerns with unrest in Bahrain, Yemen, and Syria, together with upcoming elections in Nigeria, Africa’s biggest oil exporter.”

(Online Apr. 11, 2011; author’s e-mail: samf@ogjonline.com)

Related Articles

Inhofe, Lankford say new BIA rules threaten Osage oil operations

07/10/2015 New US Bureau of Indian Affairs regulations that increase production expenses on tribal lands could put the Osage Nation out of business, Oklahoma’...

House panel’s crude export ban hearing weighs urgency against caution

07/10/2015 A US House Energy and Commerce subcommittee hearing on legislation to repeal the ban on exporting US-produced crude oil quickly broke along party l...

MARKET WATCH: NYMEX, Brent crude oil prices rebound more than $1/bbl

07/10/2015 Prices for US light, sweet crude oil and Brent crude each rebounded by more than $1/bbl on their respective markets July 9, and analysts attributed...

MARKET WATCH: NYMEX crude oil prices drop for fifth consecutive trading session

07/09/2015 US light, sweet crude oil prices settled slightly lower on the New York market July 8 for the fifth consecutive trading session, and analysts attri...

Ending crude export ban would help rural US areas, House panel told

07/09/2015 Rural US communities generally have benefited from the nation’s crude oil production renaissance, and potentially could be helped more if restricti...

MARKET WATCH: Brent oil prices climb; NYMEX oil price holds below $53/bbl

07/08/2015 US light, sweet crude oil prices settled slightly lower on the New York market July 7 to remain under $53/bbl as Brent crude oil prices gained mode...

EIA: US oil output fell 50,000 b/d in May

07/07/2015 Total US crude oil production dropped 50,000 b/d in May compared with April and is expected to continue falling through early 2016 before growth re...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected