Tuesday, March 3, 2009
Reuters mentioned Oil 101 today in a discussion of WTI as a benchmark. I made the case that WTI is a great benchmark, with liquidity, large physical volumes (which makes it more difficult to squeeze), its location in a stable market with a history of free trade and little government interference. As you will know from reading Oil 101, there are well over 100 benchmark grades of oil around the world. All of these oil benchmarks trade as spreads to one another and to WTI. The inherent flexibility of these spreads means that any changes to a single benchmark can be compensated for.