BofA/Merrill On Why Expensive Brent Crude Is What Really Matters In The US

Ignore the WTI-priced oil that’s trading at just over $100/barrel.

BofA/Merrill explains why it’s the pricier Brent crude that matters:

Even though equities and bond markets remain focused on WTI crude oil as the key US benchmark, we would argue that the price of Brent crude oil is more important to the US economy than the price of WTI. To begin with, seaborne crude oil grades in North America, which ultimately impact at least 70% of the population, are trading in line with Brent crude oil prices and not with landlocked WTI. In effect, a supply glut around the delivery point of WTI at Cushing, OK has depressed this important US benchmark relative to the price of near-by crude oil blends. So even if the price of WTI is depressed relative to the price of Brent, the price of gasoline across the United States remains in line with the price of gasoline in Europe (Chart 18). In other words, the benefits of depressed West Texas crude prices in Oklahoma are not accruing to drivers in North America, but to refiners and to pipeline and storage operators in some parts of the Midwest.


Photo: BofA/Merrill Lynch

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