Usually WTI is traded at a premium over Brent but recently the spread is reversed and is widening (17)? Can anyone here help to explain the reasons besides the supply and demand? I understand US inventory is piling at Cushing, Oklahoma and the Middle East disruptions. Any other reasons behind the scene? thanks
nothing new, obviously confirms you comments, bloomberg article U.S. Oil Glut May Be Eased by Seaway Pipeline Reversal (Update1) 2011-02-15 16:52:48.48 GMT (Updates with Enterprise comment in fourth paragraph.) By Lananh Nguyen Feb. 15 (Bloomberg) – Reversing flows through a pipeline that brings crude to the U.S. fuel hub in Cushing, Oklahoma, from the Gulf Coast would alleviate a glut that has depressed the value of West Texas Intermediate oil, JBC Energy GmbH said. Switching the Seaway Crude Pipeline System would help cut record crude inventories at Cushing, according to the Vienna- based researcher. U.S. benchmark WTI for delivery in April on the New York Mercantile Exchange dropped today to $14.88 a barrel below North Sea Brent for the same month settlement on the ICE Futures Europe exchange. The spread was at $14.27 as of 4:50 p.m. London time. The 530-mile (853-kilometer) Seaway pipeline, operated by Enterprise Products Partners LP, carries crude northbound from Freeport, Texas, to Cushing. It also supplies refineries in the Houston area and has a usable storage capacity of 3.4 million barrels, according to the company’s website. Seaway’s former operator Teppco Partners LP, said in 2007 it would consider reversing the pipeline’s flow. “A reversal would send up to 350,000 barrels a day of crude from Cushing directly to Houston, significantly releasing pressure on the Cushing complex,” JBC said. “This would clearly be in the interests of crude producers while the Nymex should also gain from an increase in the stability of its benchmark in its battle with ICE on the market lead.” Stockpiles at Cushing rose in the week ended Jan. 28 to 38.3 million barrels, the highest since at least 2004, according to the Energy Department. TransCanada Corp. started deliveries to the storage hub on Feb. 8 in the second phase of its Keystone pipeline project. Evaluate Opportunities “We continually evaluate opportunities that would advance our strategic goals and add value for customers,” said Rick Rainey, an Enterprise spokesman based in Houston. “We’re partnered with ConocoPhillips on this, 50 percent, and any kind of decision regarding a reversal would have to be done in coordination with ConocoPhillips.” Ric Sweeney, a Houston-based spokesman for ConocoPhillips, said the company doesn’t comment on “market rumors or speculation.” The “ridiculous” spread has depressed Midwest prices and pushed cracks, which measure refining profit, to unusually high levels, said JBC Energy analysts led by David Wech. Oversupply at Cushing has also caused deep discounts for other inland benchmark crudes, including West Texas Sour. “WTS is a key grade in the U.S. market because it is used to price over 1.5 million barrels a day of Mexican and Venezuelan crude sold to the U.S.,” JBC said. Rising U.S. imports of WTS-priced grades “will tighten the supply available to other buyers.” WTS-related grades As U.S. refiners increase purchases of cheaper WTS-related grades, buyers in China and India may need to seek alternative supplies. The U.S. discounts “could provide the necessary impetus for a raid on the Iranian armada anchored in the Persian Gulf for a quick fix of heavy crude,” JBC said. The pipeline operators would also benefit from higher flows, given its utilization rate has “often been below 50 percent” of capacity, JBC said. Switching crude flows south would give also Gulf Coast refiners access to cheaper feedstock, including Canadian Heavy crude. A reversal isn’t likely to affect Midwest gasoline pump prices, the researcher said. “Policy makers have a strong case to make for a reversal,” JBC said. “But they cannot easily interfere with market practices, while refiners, traders and speculators will lobby against such a move. The market is not being very efficient at the moment.”
Like you said, people are saying it is due to the way oil is priced at Cushing and the influence of inventories.
WTI - Cushing storage near record levels - No link from Cushing to gulf coast refineries - Keystone Cushing connection active on Feb 1 - Mid-Con refineries down due to recent cold spell (less demand) - General resurgence in drilling and production in US - Currently in seasonally weak demand period - No Asia demand for heavy Canadian crude Brent - parts falling off Brent platforms, disrupting supply - high distillate yield, distillate is in demand now
^ someone knows their petroleum!
- No Asia demand for heavy Canadian crude ------------------ WTI is considered light sweet, isn’t it?
Here’s a good article on it: http://online.wsj.com/article/SB10001424052748703373404576148360329319834.html
>>>WTI is considered light sweet, isn’t it? Yes, but some refiners (FTO) have the potential to swing crude inputs from light to heavy depending on the respective pricing. The heavy canadian crudes have been trading at a $20-30/bbl discount to WTI this year (last year it was more in the $5-15/bbl range), so FTO is using more heavy. So you have more light sloshing around. The asia part I’m not terribly familiar with, just saw a report yesterday that said some canadian producers were willing to export heavy from Vancouver to Asia but couldn’t find any takers.