"Your service has proven to be a very lucrative investment for me and I must applaud you in how you navigate through these interesting times in an extremely calm and confident manner.

"I am however very confused as to the importance of the two oil prices that I monitor. Brent Crude appears to be increasing in value today whereas US light crude is falling. The 20 year ratio chart of the two prices makes very interesting reading with Brent Crude dramatically increasing in value by comparison. I know that you have discussed the two prices before but I would love your updated insight into the economic implications of this."

David Fuller's view Thanks for the feedback and I am delighted that you have benefited from the service. On the subject of manner, calm we can do and we believe it helps the analytical process, but confidence when forecasting is a dangerous ally. We aim to both observe and question objectively. The process is always fascinating, potentially rewarding but seldom easy.

WTI (West Texas Intermediate) (weekly & daily) most closely reflects oil supply and demand in the USA, as the name implies. I have seen comment that Brent (weekly & daily), named after the North Sea field, is more reflective of global conditions. Indeed, Wikipedia says: "It is used to price two thirds of the world's internationally traded crude oil supplies."


Prices for the two contracts used to be all but indistinguishable, as you can see from this monthly overlay chart dating back to 1988. The ratio chart, as you point out, shows Brent moving to a significant premium over WTI this year.

I had assumed that WTI was lagging due to a surplus of oil in the USA, at a time when the country was also consuming more of its own natural gas, which is far cheaper. I had also assumed that the loss of Libya's production was a factor as it went mainly to Europe. However these are opinions, as far as I know, rather than facts although the US glut is confirmed by this assessment from 'The Barrel', supplied by Eoin. Informed comment on this subject is always welcome.


Meanwhile, the economic implication which we keep repeating is that prices for crude oil remain uncomfortably high. Consequently, they have weighed on both GDP growth and equity prices.