Question Regarding West Texas vs. Brent Spread

A

Alchemist

I wonder if someone could educate me.

What are the factors that go into the spread between the NYMEX and the IPE crude contracts?

Last week on the August contract the spread never went much above 10 cents, while today it has been as much as 40 cents at times.

Thanks!
 
No that's wrong as at times Light Sweet has traded below brent. Someone once explained it to me and to be honest can't remember exact details but there was definately more to it that cost of shipping.
 
light sweet is a cleaner burning (low sulfur) product. slightly different demand profile. for example, an increase in brent supplies may not affect light sweet prices. I presume there are demand considerations that depend on blend and the nature of the spot demand (end user).

but hey, that's just a guess.
 
Actually Brent has a 0.4 pct sulfur content while WTI is 0.3 pct. I think the pricing has more to do with the API gravity on Brent being around 38.5 and WTI around 40. I could be wrong on this, I can't remember.
 
I would be careful with that spread right now. NYMEX crude is for Louisiana delivery meaning that the very warm Gulf of Mexico could add a lot of volatility to the futures price.
I would look to trade this spread through the winter months when the seasonal dynamics are roughly the same (it's cold) and the refining dynamics of making heating oil are more alike with regards to the make up of the different crude specs.

If someone disagrees with this please destroy my thesis.
 
Quote from Alchemist:

I wonder if someone could educate me.

What are the factors that go into the spread between the NYMEX and the IPE crude contracts?

Last week on the August contract the spread never went much above 10 cents, while today it has been as much as 40 cents at times.

Thanks!
More...

There are numerous factors but to mention a few: global supply and demand for the various crudes and products, crack spreads, shipping, USD, refinery capacity, product specifications (sulfur content, API gravity), etc.
 
Quote from zf trader:

I would be careful with that spread right now. NYMEX crude is for Louisiana delivery meaning that the very warm Gulf of Mexico could add a lot of volatility to the futures price.
I would look to trade this spread through the winter months when the seasonal dynamics are roughly the same (it's cold) and the refining dynamics of making heating oil are more alike with regards to the make up of the different crude specs.

If someone disagrees with this please destroy my thesis.
More...

The delivery point for NYMEX CL is Cushing, OK.
 
Thanks for the interesting replies, all.

I meant 1.10 last week and up to 1.40 this week by the way, not 0.10 and 0.40 like I said.

I understand that there are reasons why there is a spread -- my question was more along the lines of why did the spread increase this week?

The Gulf of Mexico Hurricane risk theory from zf trader makes some sense to me, particularly after reading about the situation on weather.com.
 
Crushing Oklahoma is indeed the delivery point nymex crude. Henry Hub Louisiana is the delivery point for nymex Natural Gas, sorry for any confusion.
 
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