Friday, December 19, 2008

What's the Difference?
I wonder what the difference between the Brent Crude and West Texas Intermediate. I know they are produced in different places, but other than that I am at a loss. The price for the two types of oil is shown on commodity tables and across the CNBC tickers. What is interesting to me is that the two oil prices never seemed to me to diverge more than a dollar, but this is anecdotal from watching CNBC. Today the two have diverged by almost eleven dollars. With oil at $15o a barrel this divergence may not be that significant, but at $33.87 per barrel, the differnce seems significant. Brent is at $44.50, indicating that West Texas crude is 24% cheaper. I don't know why these seemingly similar benchmarks would move so far apart.

Update: Problem solved, and I better undo my arbitrage trade. The West Texas price reflects January futures contracts while the Brent reflects February futures. The February West Texas futures contracts closed at almost $43. This shows the importance of comparing apples to apples.

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