WTI and Brent futures pricing structure

DP Scheitrum, CA Carter, C Revoredo-Giha

Research output: Contribution to journalArticle

5 Citations (Scopus)
15 Downloads (Pure)

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
Pages (from-to)462 - 469
Number of pages8
JournalEnergy Economics
Volume72
Early online date26 Apr 2018
DOIs
Publication statusFirst published - 26 Apr 2018

Fingerprint

Futures pricing
Structural breaks
Pricing
Benchmark
Commodities
International trade
Oil markets
Futures markets
Supply disruption
Margin
Crude oil
World market
Crude oil futures
Oil
Simulation model
Stylized facts
Futures prices
Oil prices

Bibliographical note

1031429

Keywords

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

Cite this

Scheitrum, DP ; Carter, CA ; Revoredo-Giha, C. / WTI and Brent futures pricing structure. In: Energy Economics. 2018 ; Vol. 72. pp. 462 - 469.
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WTI and Brent futures pricing structure. / Scheitrum, DP; Carter, CA; Revoredo-Giha, C.

In: Energy Economics, Vol. 72, 26.04.2018, p. 462 - 469.

Research output: Contribution to journalArticle

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AU - Revoredo-Giha, C

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AB - 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.

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