WTI: No Longer A Benchmark For Oil Prices
February 13, 2012 by Leave a Comment
The continuous divergence between the price of West Texas Intermediate (WTI) and Brent prices has called into question whether markets should continue to consider the price of WTI a benchmark at all. The biggest problem for WTI is that the physical characteristics of the Cushing, Oklahoma delivery point for WTI has been broken and has rendered the price of WTI obsolete as a benchmark for oil and gasoline prices in the U.S. However, markets have remained efficient in the sense that they have easily shifted their attention to alternative benchmarks, as is the case with the price of Louisiana Light Sweet (LLS) crude. In the past, the price of LLS remained very close to the price of WTI. However, since the divergence between WTI and Brent started, the price of LLS has followed the later rather than the former. Thus, markets have already chosen to de-emphasize WTI as a benchmark price for oil. In addition, the price of U.S. gasoline has followed the price of LLS and Brent rather than the price of WTI.