Montreal, Canada

The price of benchmark oil has dislocated from the rest of the global market resulting in performance anomalies for two major contracts. This poses another headache for passive commodity investors looking to diversify in index funds linked to oil futures contracts.

Investors in commodities have struggled to determine which popular oil contract better represents the true state of the oil market. Increasingly, it looks like North Sea Brent is the smarter option.

North Sea Brent, which trades in London, closed at $99.63 on Friday and at its highest level since late 2008. In stark contrast, West Texas Intermediate crude closed at $89.73 – widening the discount between the contracts to a near record of $9.90 a barrel.

Some commodity ETFs have even posted negative returns while underlying contracts have rallied.

Worse, with oil representing the single largest commodity weighting in most broad commodity indexes, West Texas oil is becoming a performance liability as it trails North Sea Brent.

For retail investors, two popular choices are available to play oil.

Since its introduction last June, the United States Brent Oil Fund (BNO) has gained a cumulative 29.4%. But its sister fund, the United States Oil Fund (USO) is up just 11.2%, reflecting the lag in West Texas crude.

Part of the explanation lies in rising inventories of oil in Cushing, Oklahoma, where U.S. oil storage facilities are based. Inventories have been rising steadily in the United States; and until Egypt’s Black Swan event last Friday which shocked the oil markets, West Texas crude was in a steady decline since mid-January.

Not all oil markets are the same. Increasingly, it seems that North Sea Brent oil is more representative of the true state of the global oil market. Investors should tread carefully if looking for oil-based index funds. They’re not created equally.