As 2012 approaches its close, the disconnection between the two contracts, Brent and WTI, and the vulnerability to localised demand and supply issues, become vividly startling. Once again the spread between the American Midwest and European standards hovers around one year high, the latter being more reflective of the global events.
The bipolar nature of the oil market has got the traders accustomed to wider spreads. Where US shale boom and active drilling in North America have kept WTI from climbing, the geopolitical strings are controlling the Brent crude theatre, more recently characterised by the chances of Syrian violence seeping into Turkey and driving the gap near a years high.
Out of the chaos emerges confusion: The recent S&Ps faux pas resulted in hours of mayhem when the leading financial index group accidentally reversed the new weightings of WTI and Brent crude oil in its commodity index, SGCI.
However, with the correction published, the Reuters reported the broadening of the spread between Brent crude and WTI by more than 1 percent in just 30 minutes. The correct version has cut the share of US WTI by 6.25 percent for 2013, while increased European benchmark by 4 percent.
Apparently the move has supported the Brent-WTI spread and has forced some experts to ponder over the need for a new benchmark to price oil. However, the contemplation for a new benchmark is not solely based on the changes in one commodity index.
It surely also depends on what the consensus is on the longevity of this gap. If the issues in MENA region stabalise to a no-war and no-violence state, one might see the premiums shrinking once again. Yet, the premium might enlarge further for sometime before collapsing, given the instable history of the region in recent times. The history has witnessed this many times.
Though the increasing distance between the two has resulted in many oil majors to shift loyalties or direction altogether, the proponents of a change in the standard need to be wary of the time these two have served as yardsticks.
Though widening of the spread has triggered the market to seek for one global benchmark, it might take years before Brent and Nymex go away as oil benchmarks, as WSJ states.

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