London’s oil futures market was busier than its New York counterpart for the first time in at least 17 years last month, reinforcing Brent crude’s ascendant role in setting global prices.
The CHART OF THE DAY shows investors traded 11.3 million Brent futures on the ICE Futures Europe exchange in April, compared with 10.6 million West Texas Intermediate contracts, according to data compiled by Bloomberg. That was the first month the London future had higher volumes than New York’s since 1995, the earliest period for which Bloomberg has figures.
“WTI is suffering because of bottlenecks in the mid-continent that’s causing localized weakness because you can’t move the oil to the Gulf of Mexico,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “Bigger funds don’t want to deal with that, so Brent will be seen as a better overall proxy of the global marketplace.”
The delivery point for WTI purchased through the New York Mercantile Exchange is Cushing, Oklahoma, which has insufficient pipelines connecting it with refineries in Texas and Louisiana. That’s led to a glut of crude, prompting banks from Credit Suisse Group AG to Barclays Capital to question the viability of the U.S. contract as a benchmark price.
WTI has traded at a discount to Brent since Aug. 17, 2010, amid the surge in supply in Cushing as Canadian crude flowed into the U.S. Midwest. There are several pipelines in the works to lessen the bottlenecks, with the Seaway project developed by Enbridge Inc. and Enterprise Product Partners LP scheduled to start carrying about 150,000 barrels a day of crude to the Gulf Coast by the end of this month.
WTI’s “relevance” to global oil markets is “waning” as gauges including the Dow Jones-UBS Commodity Index have or will increase weightings of Brent contracts, Barclays Capital said in October.