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The Positive Side of the WTI-Brent Spread

by Dr. Kent Moors | published February 17th, 2012

The spread between the West Texas Intermediate (WTI) benchmark crude contracts traded on the NYMEX and Brent crude traded in London is widening again.

When the market closed yesterday, the spread once again approached 20% of the WTI price (This is more accurate way to measure the spread).

Brent is fast approaching $122 a barrel; WTI stands north of $102.

Both benchmarks have accelerated; and both are now up 2.5% for the week.

Brent is also up 10.2% for the month, while WTI started its climb just recently. All of its monthly gains (at 2.4%) occurred in the past week.

But it’s not just the rising price tag that has us concerned.

We are fast approaching that time of year when gasoline and diesel demand are at their peak.

In the U.S., more than 20 municipalities will introduce new summer gasoline mixtures by May 1.

Now you might never have heard of this. But there are two types of seasonal gasoline.

There is a winter-blend and a summer-blend fuel.

The summer blend is mixed to cause less smog from its emissions. It is also designed to reduce pressure in your gas tank when summer weather reaches scorching temperatures.

Those additives traditionally add about 15% to the cost of a gallon of gas. And, the transition requires that U.S. refineries temporarily retool their production capabilities, which can lead to a short-term supply dip.

We will certainly see the highest gasoline costs on average in the U.S. market this summer.

Just how high?