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

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

Seven Group buys into Beach Energy

02/03/2015 Media group Seven Group Holdings, Perth, has bought 13.8% of Adelaide-based Beach Energy Ltd. through share purchases fuelling speculation of a pos...

MARKET WATCH: NYMEX crude oil stays positive on lower rig count

02/03/2015 Oil prices on the New York and London markets closed higher Feb. 2 on positive momentum generated by a falling US rig count, suggesting cuts in pro...

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...

Pessimism mounts over UK offshore industry

02/02/2015

Pessimism about the UK offshore oil and gas industry is gaining momentum.

White Papers

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

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

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