September 2014 – Brent vs. WTI Prompt-Month Contract Analysis with ZEMA


NYMEX Crude Prompt-Month Contract (Sep. 14)

On the New York Mercantile Exchange (NYMEX), prompt-month contracts for Brent and Western Texas Intermediate (WTI) crude oil slid for the 3rd month in a row. By the end of the last Friday of September 2014, the prices of Brent and WTI dropped by 4% and 3%, respectively. When compared to the previous month, in September 2014 prompt-month contracts for Brent dipped just below $100 USD/Bbl to settle at $99 USD/Bbl. Meanwhile, the prompt-month contract prices for WTI dropped to $93 USD/Bbl, $3 USD/Bbl lower than September 2014. In September 2014, data from NYMEX future settlements showed that Brent and WTI hit their lowest price levels for the last 12 months—Brent and WTI traded at $9 USD/Bbl and $7 USD/Bbl below the last 12-moth average. Also, the last 12-month averages for Brent and WTI on NYMEX dropped to $108 USD/Bbl and $100 USD/Bbl, respectively. The Brent-WTI spread (represented by the purple area in the graph above) reached $6 USD/Bbl this month, which was below the last 12-month average of $8 USD/Bbl.

Both benchmarks are heading for their biggest quarterly loss in more than 24 months. Particularly in September, ample supplies have buffered the market from the unrest in the Middle East. While the largest Arab-U.S. military coalition since the 1991 Gulf War has been launched to control the situation in the region of the 2nd largest OPEC producer, Iraq, Libyan output rose to 0.925 million barrels per day (Mbpd).[1]

According to the Energy Information Administration (EIA), U.S. crude production rose to 8.87 Mbpd in the week ending September 19, the highest level in 28 years.[2] Earlier in September, EIA cut down on its global crude demands due to weaker economic growth in Europe and China. In short, tepid demand and ample supplies are the primary reason for the current downfall of crude oil prices.

 

[1] “Brent Crude Heads for Weekly Decline on Ample Supply,” the Malay Online, September 26, 2014, accessed September 29, 2014, http://www.themalaymailonline.com/money/article/brent-crude-heads-for-weekly-decline-on-ample-supply.

[2] “Crude Drops as Dollar Continues Strengthening,” The Futures Magazine, September 29, 2014, accessed September 29, 2014, http://www.futuresmag.com/2014/09/29/crude-drops-as-dollar-continues-strengthening.

Data Sources: NYMEX


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