Despite losing more than half of its per barrel value, it looks like WTI crude oil has regained its West Texas swagger, at least in relation to its more worldly brand of crude oil, Brent.
Both grades of crude oil have plunged in price, due to a number of factors, including a mostly unprecedented game of chicken by OPEC's Gulf-producing contingent. But the price of WTI crude oil has begun trading above the price Brent for first time since 2013, today. (Click here for a recap of Tuesday's crude action.)
The reasons for this are several, but this easiest way to reconcile the flip in relative value is to remember that all commodities, like politics, are local, to paraphrase the famous remark of the late House of Representatives Speaker, Tip O'Neil.
WTI had traded to a fairly steep discount to Brent crude over the past several years mostly due to capacity constraints that trapped oil in the middle of the country and at the Cushing, Okla. delivery point for the NYMEX futures contract, which resulted in stored oil volumes nearing capacity, resulting in a glut in that key market.
At the same time, the surge in demand from China, in particular, sanctions on Iran's oil exports, and faltering Iraq production combined to make international supplies of oil tight.
During the course of 2014, two major pipeline projects were completed that effectively liberated WTI oil from Cushing and Louisiana. The Seaway pipeline that used to carry oil from the Gulf Coast to Cushing was reversed, and a pipeline to Houston from Louisiana was also put in service.
The rise is in rail shipments to both the East and West Coasts served to further relieve the oversupply in the Midwest.
The U.S. has also increased the amount of allowable exports of super lightweight crude oil, as well, and there is a request from Mexico to allow U.S. crude to be sent there to mix with its heavy-crude oil to make it more marketable in this over supplied global market.
U.S. refiners have been a source of strong domestic demand throughout the recent price slide, running well above 90 percent, making record amounts of gasoline for both domestic consumption and export.
The primary factor that made Brent more valuable, relative WTI has been obviated, as China demand growth has ebbed, Iran exports have rebounded, along with Iraqi production, which has hit a post-Saddam Hussein-era high point. The surge in U.S. production has also foreclosed the U.S. import market to West African producers, such as Nigeria, which has been left, at times, with nowhere or anybody to sell their oil to.
For many years, WTI was at a premium to Brent, reflective of the transport costs of that oil to the U.S.
With the U.S. acting as a silo of demand and OPEC members tripping over themselves to oversupply the global market, WTI will likely return to its position of higher relative value.
It is not because WTI is better looking or more reflective of global security or insecurity, it is simply because of local market conditions, which are just better and stronger.
Commentary by John Kilduff, a partner at Again Capital, an investment-management firm that specializes in commodities. Follow him on Twitter @KilduffReport.