July 2014 – Brent vs. WTI Forward Curve Analysis with ZEMA


NYMEX Crude Forward Curve (Jul. 2014)

On the New York Mercantile Exchange (NYMEX), forward curves for both European and U.S. crude oil benchmarks dropped in July 2014 when compared to the previous month. The NYMEX Brent forward curve for delivery in the next 24 months (represented by the blue line in the graph above) slightly dropped to $102 USD/Bbl, while Western Texas Intermediate (WTI) (the red line in the graph above) averaged at $91 USD/Bbl for the same delivery period. The Brent-WTI spread widened from $10 USD/Bbl to $11 USD/Bbl (the light blue area in the graph) on average for the next 2 years.

Crude market players kept an eye on the outcome of the Federal Open Market Committee (FOMC)’s policy meeting, U.S. GDP growth, and geopolitical tensions in several key regions. Market players seemed reluctant to lock in big positions before receiving key indicators of the economy’s status. On August 1, 2014, U.S. non-farm payrolls, the unemployment rate for July, and the Markit Economics Manufacturing PMI are due. Key European inflation and employment data and manufacturing activity gauges from China will be published at the end of same week.

While EU leaders are trying to impose their toughest sanctions to date against Russia, the market continues to believe that this will not affect production levels. It should be mentioned that Russia is the world’s largest energy producer and supplies energy to Europe; hence, its production levels have a large impact on Brent prices. Any retaliation from Russia in the form of decreased production levels will push Brent higher; consequently, the Brent-WTI spread will widen. Also, conflicts in Northern Iraq have left oil production in the South unaffected. Libyan crude output is also unaffected (around 500,000 Bbl/day), despite the escalating violence in Tripoli.

Data Sources: CME


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