NYMEX to become more local oil market

Brent's premium to WTI prices is increasing. Since NYMEX WTI crude oil prices are losing close relationship with global situations, NYMEX seems to be going to become a more local market.

The WTI crude oil prices should be higher than Brent due to its high grade, however, the American standard prices have been usually cheaper than Brent over the past couple of years.

Crude oil stocks at Cushing, Oklahoma used to have major impact to WTI crude oil prices, because NYMEX crude oil futures contracts are finally settled by physical delivery at Cushing. It has made some people to doubt the WTI's validity as an indicator price.

Therefore, some market participants recently use brent prices as the market indicator rather than WTI. Investment banks are also using Brent prices for their price forecasts.

The Brent/WTI price difference had close correlation with Cushing crude oil stocks until 2009, but the relationship has significantly changed in 2011.

Tensions in Middle East has been the major factor to decide the price differentials rather than the US inventories. Arabian Spring and Libyan civil war widen the Brent/WTI prices last year, then Iran's nuclear program and Syria-Turkey tension are supporting the recent steady premium.

On the other hand, Cushing crude oil inventory became to be able to carry to the Gulf of Mexico area after beginning of the reverse operations at the Seaway pipeline in May this year. The US Midwest crude stocks are no longer to be dead-end.

The Brent/WTI differential previously had been affected by the US domestic inventory level, but now it is largely swayed by the Middle Eastern geopolitical situation.

Middle Eastern tension is losing its influence to the United States because the US reduces crude oil imports due to increasing domestic production.
Meanwhile, the Middle Eastern situation that stimulates the Brent market also affects on Asian nations' crude oil imports significantly.

Brent prices' reaction against the Middle East tension seems not excessive, rather it is more critical that WTI prices are weakening relationship with international affairs.