Saturday, January 16, 2016

Oil benchmarks

West Texas Intermediate (WTI) is now trading on par with Brent, the current international standard.  Yet, the alignment of the price and the US export ban having been lifted as of the end of the year 2015, what does the future hold?  The Economist write in Crude Measures:

"A good benchmark has to reflect supply and demand for oil wherever it is used. WTI may continue to be influenced by bottlenecks in the American market. Brent reflects the market for oil in north-west Europe. That was once a positive, but as Europe’s share of global demand for oil declines, proximity to the continent is no longer the advantage it was.

That suggests that an Asian benchmark will rise to the fore. The Shanghai International Energy Exchange plans to launch its own yuan-denominated contract this year. The new benchmark will have trouble getting off the ground. For one thing, China’s capital controls make it difficult for foreigners to buy the yuan needed to trade the contracts. The wild swings in China’s equity markets set an unnerving example for investors. But time is on its side."

Read the complete article here.

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