Oil markets are like cheeses. There are the processed, bright orange slices of American cheese -- and then, there are the rich and smelly wedges of Gouda. Likewise, no two oil markets are created equal.
On one side, there's the more expensive Brent crude from the exotic North Sea in Europe. And then, there's West Texas Intermediate (WTI) from the heartland of Cushing, Oklahoma. The popular "brent/wti spread" is the ever-fluctuating difference between the price of these two oil markets.
Today (November 17), I'm sitting down with EWI's Energy Specialty Service and Global Market Perspective's "Energy" segment editor Steven Craig to discuss the recent hullabaloo surrounding this very brent/wti spread.
Nico: Good afternoon, Steve. If you recall, back in late August, early September, the brent/wti spread had widened (i.e. Brent prices gained more than WTI) to an all-time record high of around $26 per barrel.
At the time, the mainstream experts cited a slew of fundamentals that would keep the distance between the two oil markets growing wider and wider. Foremost among them:
- A sabotage attack on a Royal Dutch Shell pipeline
- A drop in Nigerian oil exports due to pipeline damage
- And disruptions to production due to ongoing violence in Libya
But in the September 2011
Global Market Perspective (published September 2) you presented a very different picture of the brent/wti spread. There, you provided the following close-up of the pair alongside this timely insight:
"Brent's premium over WTI has set record after record and captured the media's attention in the process... The wave count that we've been following for this spread, as well as the divergence between price and momentum, combine to suggest that a reversal is coming."
Could you walk me through the Elliott wave labeling of the chart?
Steve: This is a classic impulse pattern -- it unfolds in five distinct waves -- from the April 2011 low. Prices were nearing the end of the final, fifth wave of this entire structure. And, in the Elliott model, five wave moves are followed by three-wave corrections. Hence, the forecast of a pending "reversal."
Nico: So, what happened to prices in the weeks, and months that followed?
Steve: The brent/wti spread followed its Elliott script to the letter. The spread narrowed from its peak of over $27Bbl in mid-October in a violent decline to the $9 level we see today.
Nico: Holy smokes! Well, in the November 2011
Global Market Perspective's "Energy" segment you revisit the brent/wti spread. Any new developments?
Steve: Well, in the November
GMP, I reveal whether WTI's recent shift to backwardation after a three-year stint in contango is really a sign of a favorable demand picture.
What are you waiting for? There are two easy ways to get instant access to Steve's energy analysis:
Or, get started with EWI's, intraday, daily, or weekly
Energy Specialty Service here.
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