Dow Jones-UBS Commodity Index adds Brent Crude
Dow Jones Indexes said Tuesday its main commodity index will incorporate Brent Light Crude for the 1st time starting next year, underscoring the growing significance of the European Crude Oil benchmark.
Dow Jones Indexes is majority owned by CME Group Inc. (NYSE:CME), which also owns the New York Merc, home to the widely cited West Texas Intermediate Crude-Oil contract (WTI).
Previously, the WTI contract accounted for the entire Crude Oil component of the Dow Jones-UBS Commodities Index.
Brent will now account for 33% of the index's Crude Oil component, while WTI will account for the rest, Dow Jones Indexes said.
Dow Jones Indexes said Brent's growing economic significance as a global benchmark, as well as production levels and liquidity, are behind the change. Brent trades on the ICE Futures Europe exchange, operated by rival Intercontinental Exchange Inc. (NYSE:ICE).
Brent Crude and WTI historically have traded within just a few dollars of each other, and WTI was once regarded as the most important Crude Oil benchmark off which much of the World's oil was priced. But, a supply bottleneck in the Central US has depressed the price of WTI for much of this year, causing the contract to trade at a discount to Brent of as much as 26 bbl.
As a result, many Crude Oil market watchers have come to view Brent as a more accurate gauge of Global Crude Oil supply and demand. In addition, that disparity means speculators who invested in Brent reaped bigger profits this year vs those who stayed in WTI.
On Tuesday, light, sweet crude on the Nymex, or WTI, settled up 0.49, or 0.6%, to 86.16 bbl. Brent Crude settled up 1.78 bbl, or 1.63% to 110.73.
The change is a relatively small one, given the variety of commodities included in the Dow Jones-UBS Commodity Index.
WTI will now make up about 9.7% of the index, down from 14.7% last year. Brent Crude will now account for 5.3% of the index.
Still, the change is likely to mean a shift of investor money out of WTI and into Brent, as mutual funds and other investors who track the index adjust their holdings.
Dow Jones Indexes said an estimated $80.2-B tracks the Dow Jones-UBS Commodity Index.
Other commodity indexes, including the Standard & Poor's Goldman Sachs Commodity Index, already include both Brent and WTI in their weightings.
Paul A. Ebeling, Jnr.
News Corp.'s (NWS) Dow Jones & Co., publisher of The Wall Street Journal and this newswire, is a minority partner in Dow Jones Indexes.
Paul A. Ebeling, Jnr
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.