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WTI might be misleading oil benchmark

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Rick Bowmer/AP

(Read caption) A unicyclist rides pass a gasoline pricing sign in Portland, Ore. The author argues that Brent crude may be a more reliable index than the WTI, even though financial websites tend to focus on the latter.

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In the Energy Information Administration's latest "This week in petroleum" there is one interesting detail. During the latest year (or year to August 26), the price of the most commonly quoted form of oil, the West Texas Intermediate (WTI), is up only 13% (from about $75 per barrel to about $85), while the price of crude gasoline is up 50% (from $1.95 per gallon to $2.94). The price of crude gasoline has thus seemingly increased by a third relative to the price of crude oil. Since gasoline is based on oil, how is that possible?

I am not entirely sure and there are probably several explanations, but one explanation that is consistent with recent price history is that the pricing of gasoline isn't based on WTI, but rather on Brent crude. Typically, the price difference between WTI oil and Brent oil is small, but the latest year it has increased to more than 30%. If this is the explanation then one should really question why WTI is the price that financial web sites focus on, since it seems that Brent is more important.


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