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Finding favour in oil benchmark battle

Finding favour in oil benchmark battle

Malaysia's Petronas, Delta Air Lines adopt Brent for hedging; ICE Brent volumes cut NYMEX WTI advantage in past few weeks; Goldman Sachs says switch to Brent is "smart" for investors


April 11, 2011 12:39 by

“There has been a lot of debate about which contract is more representative of the international oil market and that will continue.”

WTI has sunk to record discounts against Brent, fuelling a discussion on whether Brent better reflects global fundamentals and the turmoil in the Middle East and North Africa.

Brent was trading around a 32-month high above $124 on Friday, with WTI <CLc1> around $112.

At the beginning of March, NYMEX started offering traders the ability to hedge U.S. oil product futures RBOB gasoline and heating oil against Brent on its exchange.

Some say the strategic glut in landlocked U.S. crude has caused the NYMEX market to lose its link with global fundamentals. The disruption in Libyan exports as the country fights a civil war has clearly affected Brent most heavily.

But the long-term cause for Brent’s ascent is perhaps further east, where soaring demand from Asia is lifting requirements of Middle East, Mediterranean and West African crude, mostly priced in relation to the European marker.

Investors are helping Brent consolidate as a cross-continent marker for at least 70 percent of internationally traded crude because the structure of the ICE forward curve yields positive returns when rolling over positions every month, while for WTI the roll-over comes at a loss.

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