WTI and Brent futures pricing structure

Daniel P. Scheitrum, Colin A. Carter, Cesar Revoredo-Giha

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

WTI and Brent crude oil futures are competing pricing benchmarks and they jockey for the number one position as the leading futures market. The price spread between WTI and Brent is also an important benchmark itself as the spread affects international trade in oil, refiner margins, and the price of refined products globally. In addition, the shapes of the WTI and Brent futures curves reflect supply and demand fundamentals in the U.S. versus the world market, respectively. On the analysis of the relationship between the two futures prices, we identify a structural break in the WTI–Brent price spread in January 2011 and a break in the corresponding shapes of the futures curves around the same time. The structural break was a consequence of a dramatic rise in U.S. production due to fracking, a series of supply disruptions in Europe, binding storage constraints, and the U.S. crude oil export ban. These events are studied in the context of a simulation model of world oil prices. We reproduce the stylized facts of the oil market and conclude that the 2011 break in pricing structure was consistent with standard commodity storage theory.

Original languageEnglish (US)
Pages (from-to)462-469
Number of pages8
JournalEnergy Economics
Volume72
DOIs
StatePublished - May 2018
Externally publishedYes

Keywords

  • Brent
  • Commodity storage
  • Competitive storage model
  • Crude oil futures
  • WTI

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy(all)

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