S&P GSCI Boosts 2014 Weighting for Brent Crude, Cuts WTI

The Standard & Poor’s GSCI Commodity Index plans to raise the weighting of Brent crude, the European benchmark, while trimming that for its U.S. equivalent West Texas Intermediate.

The index weight of Brent traded on the ICE Futures Europe exchange will increase to 23.14 percent next year from 22.13 percent in 2013, as the share of New York-traded WTI decreases to 23.73 percent from 24.85 percent, S&P Dow Jones Indices said in a statement on its website. Changes in the composition of the index are based on production levels of its 24 raw materials averaged over five years.

Brent futures have traded at an average of $14 a barrel more than WTI over the past three years amid perceptions that booming oil production in the U.S., which restricts crude exports, has made the nation’s benchmark grade less reflective of global conditions than the North Sea marker, which can be shipped around the world. Assets under management of funds tracking the S&P GSCI were about $80 billion in 2012, S&P Dow Jones Indices said on Aug. 8.

“Brent is more favorable from an investor perspective,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Brent, being the global benchmark, benefits from geopolitical jitters and better reflects global supply-demand dynamics.”

New pipeline capacity intended to divert crude inventories from the U.S. storage center in Oklahoma to refineries on the Gulf Coast at the start of next year will have a larger effect on the price spread between Brent and WTI than the index re-weighting, according to Petromatrix GmbH.

Little Impact

The increase in the index’s allocation for Brent is small and “should not have any significant market impact,” Olivier Jakob, managing director at Petromatrix in Zug, Switzerland, said by e-mail today.

The S&P GSCI index will replace ICE gasoil contracts with low-sulfur gasoil during two monthly roll periods in 2014, according to the statement. ICE’s high-sulfur gasoil contract will cease trading in December 2014 and be replaced by a lower sulfur equivalent. The high-sulfur contract currently attracts more volume, with an open interest yesterday of 510,802 lots versus 6,980 lots for the low-sulfur grade, according to ICE data.

Gasoil is this third-largest component in the index, trailing the two crudes, and its weighting will decrease to 8.31 percent from 8.48 percent next year.

Among other changes in the index, gold will decline to 2.80 percent from 2.81 percent, corn will increase to 4.90 percent from 4.76 percent and London Metal Exchange copper will rise to 3.22 percent from 3.16 percent.

S&P Dow Jones Indices is owned by McGraw-Hill Cos., a competitor of Bloomberg LP, the parent of Bloomberg News.

Before it's here, it's on the Bloomberg Terminal.