Publications: Notes at the Margin

WTI Is for Storage (January 5, 2014)


Some wines are meant to be drunk young. Some are best allowed to sit for ten, twenty, or thirty years. It is the same with crude oils. Some should be processed immediately and some should be stored. Today, Light Louisiana Sweet (LLS) should be refined. West Texas Intermediate (WTI), on the other hand, should go into tanks. Of course, crude oil does not improve with age as wine does. The analogy lies instead in the economics, which dictate the storage decisions for both.


For a really good wine such as Chateau Margaux, the experts opine as to how many years it should be aged. Auction prices reflect their views. Those who invest in great wines recognize that prices offered for outstanding vintages rise until the general view deems the wine to be past its prime. Wines like Beaujolais Nouveau, on the other hand, should be enjoyed immediately to get the best value.


The economics for crude oil are similar. At times, prices of certain crudes are bid well above market value because investors expect them to be worth more in the future. Such is the case today with WTI. This week's report provides the details and discusses the market implications.


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