Something interesting happened in oil markets in response to Donald Trump’s eleventh-hour announcement of a ceasefire in the hostilities in Iran. Oil prices immediately plunged, but the US price traded above that of global oil. In fact, since late last week, the West Texas Intermediate (WTI) price has traded at a premium to the price of Brent crude, the global benchmark.
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That’s an inversion of the historical relationship, or at least the one that has held for more than a decade, in which Brent oil has usually traded at a $US3 ($4.25) to $US6-a-barrel premium over its WTI counterpart. The last time an inversion occurred was in May 2022, in response to Russia’s invasion of Ukraine.
Brent has generally been priced higher than US oil because it is the reference point for globally traded oil flowing from the North Sea, the Middle East and West Africa. It can be shipped and delivered anywhere, and therefore the pricing reflects its global reach, liquidity and seamless logistics.
US onshore oil is landlocked. It is piped to a hub at Cushing, Oklahoma, and, where Brent reflects global supply and demand balances and geopolitics, WTI prices are also driven by US domestic influences – production, demand and refining capacity.
So, why has the WTI price traded at a premium to Brent over the past week, a premium that was more than $US3 a barrel ahead of the announcement of the ceasefire?
Read the full analysis here.