What causes the spread between WTI and Brent?

The main fundamental drivers of the spread are: US crude oil production levels. Crude oil supply and demand balance in the US – i.e. crude oil inventory position in Cushing, PADD 2(mid-west) and PADD 3 (Gulf region) North Sea crude oil operations.

Why did Brent oil not go negative?

Brent contracts are settled in cash so there is no risk of going negative but they could drop significantly. “Nobody will pay you to take cash but they will pay you to take the oil they cannot handle,” said one senior industry source, asking not to be named.

What is the WTI forward curve?

The WTI Futures Curve is a contractual agreement for the price of oil at a specific date in the future. The chart shows the price from 1 month (M1) to 80 months (M80) in the future. Plot the historical data regarding WTI Futures Curves by clicking “Historical Futures Curve Data”.

What is oil price spread?

A crack spread is the overall pricing difference between a barrel of crude oil and the petroleum products refined from it. The price of a barrel of crude oil and the prices of the different products derived from it are not always in sync, leading to the spread in prices.

Why are WTI and Brent prices so different?

Another reason is that WTI supplies are produced in landlocked areas, and nowadays need to be transported to the coast, where most refineries are located. Because of growth in U.S. oil production, there’s a glut of oil supply in the U.S. midwest. So WTI now trades at a price “discount” to Brent oil.

Is Brent physically settled?

ICE Brent futures contract is a deliverable contract based on Exchange for Physical (EFP) delivery with an option to cash settle against the ICE Brent Index. This means that market participants have the option – but not the obligation – of taking physical delivery by using the EFP mechanism.

Will oil price go negative again?

But a pandemic could happen again, he said, and if oil demand “goes to the red again, now oil producers, OPEC and governments have the experience to deal with it.” That makes another round of negative prices “unlikely,” he said. Prices for WTI have rebounded since, with the May contract CL.

Is oil usually in contango or backwardation?

Yet, the oil futures curve is currently in “backwardation” which describes the situation when spot prices and the front month futures price (CL1:COM) exceed the futures prices for delivery in months that are further out.

How do you read forward curves?

The forward curve is static in nature and represents the relationship between the price of a forward contract and the time to maturity of that forward contract at a specific point of time. When the Spot Rave is upward sloping, the forward curve will be above it, and the par curve will be below it.

Why are Brent and WTI prices different?

What is the 2 1 1 crack spread?

The other standard spreads are the 3-2-1 (3 bbl crude vs. 2 gasoline and 1 heating oil), and 2-1-1 (2 bbl crude, 1 gasoline, 1 heating oil).