Libya Disruption May Reduce WTI-Brent Spread, Petromatrix Says

A disruption of supplies as a result of civil unrest in Libya may lead to a further reduction in the price difference between Brent crude and West Texas Intermediate oil, according to Switzerland-based researcher Petromatrix GmbH.

“If a real supply disruption develops in Libya in our opinion it does not matter which benchmark better represents the world supply and demand,” Petromatrix Managing Director Olivier Jakob said in a note today. “The U.S. investment flows that will want to hedge against an oil price spike will come into WTI and despite the contango issue in Cushing, this could force a further reduction in the Brent premium to WTI.”

The spread between London-traded Brent and WTI on the New York Mercantile Exchange narrowed to less than $10 a barrel, after reaching a record of $16.51 on Feb. 17, according to data compiled by Bloomberg.

The difference had grown amid rising inventories at Cushing, Oklahoma, the delivery point for Nymex. A market is in contango when supplies for nearby delivery trade at a lower price than shipments for subsequent months, making storage of oil for later sale more attractive.

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