West Texas futures contract 'broken'

The world's most widely traded crude oil futures contract is a poor measure of world prices, an expert says.

The world's most widely traded crude oil futures contract?West Texas Intermediate (WTI)?is "broken", and has become a poor measure of world oil prices, a leading oil price expert said today. WTI serves as a baseline for oil producers to price their exports and is the famed "light, sweet crude" quoted on television and in newspapers. But the future contract's price has been distorted in recent months by the fact that it is not exported and logistical issues arising from its storage at Cushing, Oklahoma, said Jorge Montepeque, the global director of market reporting at Platts, which publishes prices for much of the world oil industry.

"The price in the US was terribly disconnected from the rest of the world," he said. "WTI is broken. The mobility of it is too reflective of the reserves in Cushing." The last six months have seen WTI trade at a discount to both Brent crude from the North Sea and sour grade crudes from the Gulf of Mexico, which makes no economic sense as WTI is of higher quality and allows oil refineries to produce a larger proportion of high-value products.

At one point, Mr Montepeque estimated, WTI was trading at such a sharp discount to Saudi oil exports that it would have proven cost-effective for Saudi Aramco to import the oil all the way from the US for use in its refineries rather than use its own crude. [e-mail]