Oil prices have been on the rise amid concerns that developments in oil-producing Iraq could affect worldwide supplies. Brent Crude was trading close to the highest level since September, and little has changed for West Texas Intermediate (WTI) since militants in Iraq seized more territory. US President Barack Obama has warned that the situation could spill over into other countries.
Fighters from Iraq and Levant seized control of Iraq’s border crossings with Syria and Jordan, a member of the Anbar Provincial Council confirmed on 22nd this month. Despite the supply concerns, there is also a demand factor. The economy of the world’s second largest oil consumer may be on the up, per a Chinese manufacturing gauge which rose to a seven-month high in June. An analyst at Commerzbank AG, Frankfurt, confirmed by email that further gains in the price of oil are expected even though supply will not be affected. He further confirmed that fear, not supply disruptions, is the reason behind the upward trend in prices.
WTI for the month of August rose by as much as 62 cents to $107.45 per barrel in electronic trading on the New York Mercantile Exchange. On June 20, the July contract expired at $107.26. The volume of futures traded was just about 2.4% below the 100-day average for that time of day. For a comprehensive outlook on the prices in coming months, follow this link.
For the August settlement, Brent advanced by as much as 85 cents to $115.66 per barrel on the London-based ICE futures Europe exchange and stood at $114.83 at 1337 hours London time. Brent crude on the ICE futures exchange is trading at nine-month high.The European benchmark crude stood as a premium of $8.04 to WTI on the ICE – a rise from $7.97 on June 20. Follow the link for comprehensive details on trends in the coming months.
Brent rose 1.2% for a second weekly gain for the period ending June 20 due to unrest in Iraq, which has led to speculation of disruption of oil supplies. The crisis has escalated this month since insurgents have captured the northern city of Mosul and have advanced to towns in the north of Baghdad. Iraqi forces have struggled to halt their gains.
Differences between WTI and WCS
While these two crude oil benchmarks tend to move in the same direction, there is, however, a price differential between them. WTI persistently trades at higher prices. The difference, or spread, widens whenever Western Canadian oil producers have difficulties accessing the markets. Stewart Hanlon, CEO of Gibson Energy, stated on an episode of Commodities that the widening spread is an indicator of chaos in the market. In the past, transport bottlenecks have been behind wider spreads. However, in recent times, lower demand has been the cause of the WTI-WCS difference.
Differences between WCS oil and WTI oil
Crude oil with a high API gravity is considered to be less dense, hence light crude. Crude with low API gravity is heavy crude. Sweet crude tends to have lower sulphur content, while sour crude has high levels of sulphur. The main difference between WCS and WTI is that WCS oil is heavy, sour crude oil, while WTI is light, sweet crude. Generally, light, sweet crude is considered to be more desirable – refiners prefer it since it produces a higher yield of high-value products, requires less refining to meet sulphur standards and has fewer environmental problems.