Oil Down…Gas Up
What gives?
WTI vs. Brent
The second reason is the “disconnect” between the primarily reported oil prices. Most references to oil prices in the U.S. media are for the West Texas Intermediate (WTI) contract, a highly sought light sweet crude oil that trades on the New York Mercantile Exchange. This oil, highly preferred versus many other oils in the world that require more costly refining, typically trades at the top of global oil prices.
However, a major glut has developed in the Southwest, with U.S. crude storage at an 82-week high. For the record, an excess supply of any commodity, especially when in one primary location, depresses the price.
By comparison, the current contract for Brent crude oil, the primary European and U.K. measure of oil prices, closed yesterday at $41.03 on the ICE Futures Exchange (CNBC.com). This measure of oil is typically $5-$10 below the WTI contract price.
The point here is that much of the oil we use in this country—most of it imported from around the globe—is higher in price than the simple U.S. measure reported by the media would suggest…
It’s pure economics—boring stuff at best.
Published February 19, 2009
Jeff Thredgold, CSP
President, Thredgold Economic Associates
Republished with permission from Thredgold Economic Associates. Original article published on February 18, 2009, in Tea Leaf, a guide to understanding today's economy and financial markets.
Jeff Thredgold is president of Thredgold Economic Associates, an economic consulting and professional speaking firm based in Salt Lake City, Utah. He is an economist for Vectra Bank Colorado and the only economist in the world to have received the designation of Certified Speaking Professional (CSP).
