Brent Crude Below $100

Brian Hicks

Written By Brian Hicks

Posted April 17, 2013

Rough waters may be ahead in the commodities market.

Brent dipped at least 2.6 percent yesterday, falling below $100 a barrel, the lowest level since July of 2012.

May contract delivery was $100.39 per barrel, while the June contract hit $98 per barrel.

Chinese GDP growth retracted from 7.9 to 7.7 in the first few months of 2013. Analysts initially pegged Chinese growth to reach 8 percent, and the lag triggered numerous sell-offs.

Cushing%2C Oklahoma WTIThe American economy also reported disappointing news, with weak retail numbers, sluggish growth in New York manufacturing, and lacking confidence from home builders, as reported by Global Post. American gas futures reached $2.75 per gallon — their lowest level since 2010.

There are also concerns regarding Europe’s struggle to get its economic affairs in order.

Numerous others factors came into play in the sell-off as well, such as the bombings in Boston, a Nicholas Maduro victory in Venezuela and opposition leader Henrique Capriles’ subsequent urging of the populace to protest, an earthquake in Iran, and rising tensions with North Korea, according to Reuters.

Gold also suffered heavy losses, falling below $1,400 per ounce, forcing gold investors to reverse their bets. Copper also suffered its lowest dip in almost two years.

Distillate piles comprising of diesel and heating oil declined by around 300,000 barrels a day last week. American gasoline stockpiles also declined by 800,000 barrels, Bloomberg reports.

Reports from Organization of Petroleum Exporting Countries, the U.S. Energy Information Administration, and the International Energy Agency all forecasted a global slowdown of oil demand.

West Texas Intermediate for May traded at $88.72 a barrel on the New York Mercantile Exchange yesterday. This caused a gap of around $11 between WTI and Brent.

Brent vs. WTI

WTI hit its lowest price in four months amid speculation of surging U.S. stockpiles of crude

The Brent vs. WTI spread has increasingly narrowed thanks to new pipeline infrastructure that will move back-logged oil to the Gulf Coast for refining. Despite the fact that WTI crude is lighter and sweeter, with a lower sulfur content of .24% and an API gravity of 39.6, Brent crude is still preferred since there over 12 fields in the North Sea, and oil producing nations in West Africa, the Mediterranean, and Southeast Asia all go by the Brent standard.

Saudi Arabia and Kuwait also dumped WTI in 2009, heightening Brent’s status over the American system.

WTI is often compared to America’s failure to adopt the metric system, but the gap between Brent and WTI is slowly closing. Brent and WTI could close in to as little as $9 in 2014 because of more extensive pipeline projects in the states and the reversal of Seaway Pipeline to the Gulf Coast.

WTI has a real chance of catching up with Brent if there are more pipelines that will filter oil from the Bakken to the Gulf. If Keystone XL is ever approved, the pipeline will do some good to WTI, since some crude will flow from the Bakken. However, the Keystone XL project will benefit mostly Canadian crude sellers, who have gone through some back-log problems of their own.

If WTI is going to catch up with Brent, there needs to be a national large-scale American-based pipeline project, similar to Canada’s Northern Gateway, where the crude would flow from the oil-rich Bakken and other areas directly to the Gulf Coast for faster processing.

But with so much controversy surrounding the Keystone XL, a national pipeline will not likely happen any time soon.

There is no real problem with WTI — only that sellers going by the American standard will suffer more losses than Brent marketers. However, sellers in America and Europe may be suffering in the future.

Will lower oil prices become the new standard?

Future Oil Prices

Goldman Sachs (NYSE: GS), considered an authority on commodities trading, warned investors to forestall bets on rising Brent prices, since the market could suffer more dips.

According to Bloomberg, oil futures show crude could fall to $92.50 per barrel by April of 2017. But other analysts believe oil futures prices will reach $100 by 2016.

This does not seem like good news on the investor front, but the commodities market could boost if economic conditions are better in the future. In order to boost market confidence and avoid future dumping, governments must do more to foster economic expansion.

However, this is easier said than done. Right now, there seem to be no real signs of hopeful recovery in Europe, and though the United States is showing some signs, many are still skeptical.

But there is still China, the world’s largest consumer of oil.

The Chinese may be in a better position to expand their economy, since they are in the midst of a credit and manufacturing boom. But there are still concerns that property speculation and inflation will pose a risk to economic expansion.

Analysts and the government believe the 8 percent figure will eventually be reached, but investors may want to bet on the tortoise as opposed to the hare when it comes to Chinese growth.

Investors were expecting better results much sooner — reminding everyone that despite Chinese prowess on the world stage, the nation is still in the midst of economic ascendancy.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.