There have been stories lately referring to WTI as a "broken" benchmark, due to the front-month futures contract trading at a steep discount to front-month Brent futures, and cash WTI at a discount even to Mars, a heavy sour grade.
What constitutes a "broken" benchmark? Is it broken because it trades outside of historical norms for an extended period? Or because it is shown to have a fundamental flaw that leaves it open to being pushed one way or another? Possibly -- in which case one can make an argument that WTI is broken.
But if the WTI benchmark is broken, one might expect to see a flow of open interest out of WTI and into another benchmark, such as Brent. But since February 16, WTI open interest on NYMEX and ICE has risen 157,956 contracts, compared to a rise of 65,890 contracts for Brent.
Or if the contract is broken, crude grades normally priced against WTI should start to trade against a different crude. That has not happened either.
Perhaps WTI is just temporarily disconnected, and prices will snap back into line when the supply glut in the Midwest eases. My bet is the correction will be swift, as speculators who sold WTI-Brent spreads on the back of the fundamental disconnect head for the exits all at once.
Disconnected, but not broken. Not as dramatic, but probably more accurate.
The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.