Black Gold, Texas Tea, and Brent Bubbly?

Brent Crude needs a nickname…  While Black Gold and Texas Tea are common nicknames in the US for oil, we don’t know the equivalent for Brent Crude.  But Brent is becoming more and more of a player with the glut in the US (because of new sources coming online) driving WTI prices down, pushing the spread between the two from the typical range of $3 or $4 all the way out to more than $25.

As a result, the Brent contract has come to be seen as a better representation of global oil prices, and that has driven greater trading volume to the Brent futures contract (which is traded at ICE) instead of the WTI contract (which is traded at the CME).  All the more reason for a nickname. We’ve been wondering how that would play out in the competition between the two futures exchanges, but it looks like the bigger spread may not last long enough to matter – in the last few weeks, it’s taken a sharp turn back toward normal:

You see, the problem with trying to arbitrage this price difference was the lack of infrastructure – the US was set up to be a net oil importer, and moving huge quantities of oil out of the middle of the country was too expensive to make it worthwhile. But the CME Group’s online magazine sounds hopeful that this is beginning to change. Via Open Markets:

James Burkhard, vice president and head of oil market research of IHS CERA, said the spread will narrow once infrastructure is built, but that takes time. And there already have been changes, such as switching the flow in the Seaway pipeline from Cushing, Okla., to the Gulf to facilitate exports, but more is needed…

Once infrastructure is in place, Burkhard said eventually the price spread between WTI and Brent will likely start to reflect the cost of shipping oil from Cushing to the U.S. Gulf. “So you’re looking at a $3, $4 spread long-term rather than $20,” he added.

The reversal of the Seaway Pipeline to move oil south to the Gulf happened last year, and just a few months ago its capacity was more than doubled from 150,000 barrels/day to 400,000 barrels/day. Coincidentally, that’s right around the time the spread started narrowing. We saw a similar narrowing of the spread in late 2011, but this time around we’re seeing the effects of the structural shifts that are taking place to help balance the US and international oil markets.  It’s beginning to look like the larger-than-normal Brent/WTI spread may already be nearing an end.

Fun fact via Wikipedia:  The name “Brent” comes from the naming policy of Shell UK Exploration and Production, operating on behalf of ExxonMobil and Royal Dutch Shell, which originally named all of its fields after birds (in this case the Brent Goose).

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The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.