|
Brent-WTI spread continuing to narrow EIA says lower Brent, increased West Texas Intermediate spot prices contributing, with US light sweet crude displacing Brent crude Kristen Nelson Petroleum News
Lowered Brent and increased West Texas Intermediate spot prices have contributed to a narrowing spread between Brent and WTI prices, the U.S. Energy Information Administration said in June.
EIA said the spread, more than $23 per barrel in mid-February, dropped to less than $9 per barrel in April and since then has ranged between $5 and $10.
The agency said Brent prices are lower because U.S. light sweet crude is displacing Brent-quality imports into North America, reducing the demand for Brent-quality crude. Factors determining the future Brent-WTI spread include the balance between U.S. production and the capacity of infrastructure to move that crude to U.S. refiners.
Formerly closely linked EIA said Brent and WTI prices tracked closely prior to 2011, “with Brent crude oil prices typically trading at a slight discount to WTI crude oil, reflecting delivery costs to transport Brent crude oil and Brent-like crude oil into the U.S. market, where they competed with WTI crude oil.”
That longstanding relationship began to change in early 2011, EIA said, and since then WTI has been priced at a “persistent discount” to Brent. Downward pressure on the WTI price came from increased U.S. light sweet production combined with limited pipeline capacity to move crude from fields and storage locations, including Cushing, Okla., “the delivery point for the Nymex light sweet crude oil contract,” to refining centers.
Infrastructure expansions Factors determining the future Brent-WTI spread include the balance between U.S. production and the capacity of infrastructure to move that crude to U.S. refiners. Recent expansions in U.S. crude oil infrastructure have eased downward pressure on the WTI price, EIA said, with “significant pipeline takeaway capacity” added at Cushing since mid-2012, allowing crude oil to flow to and from trading centers more easily. With the completion of other pipeline and rail projects, it is now “possible to move barrels from production areas, such as Texas and North Dakota, to refinery centers without passing through the hub.”
Prior to mid-2012 there was only one 96,000 barrel-per-day pipeline delivering crude oil from the Midwest to the Gulf Coast. New takeaway capacity from Cushing which has come online includes the 150,000 bpd Seaway Pipeline reversal in May 2012 and that line’s 250,000 bpd expansion this January.
By the end of the year Sunoco’s Permian Express Pipeline and the reversal of Magellan Midstream Partners’ Longhorn Pipeline are expected to add 315,000 bpd of capacity bypassing Cushing, moving Permian basin crude oil directly to the Gulf Coast. Also expected to come online by the end of the year is an additional 760,000 bpd of pipeline capacity, debottlenecking Cushing.
Historic imports EIA said that even U.S. East Coast refineries, historically dependent on Brent and Brent-like crudes, can now access U.S. light sweet crude oil, with U.S. crude moved by rail replacing Brent and Brent-like crude oil imports into the East Coast, “putting downward pressure on the price of Brent crude oil and narrowing the differential versus WTI crude oil.”
The Brent-like crude imports being backed out include crudes from Nigeria, Angola and Algeria.
EIA said the U.S. imported 886,000 bpd of light sweet crude oil to the Gulf Coast in 2010. By March of this year, that volume had fallen to less than 40,000 bpd.
EIA said the International Energy Agency has reported that planned maintenance in the North Sea this summer will reduce production, “adding upward pressure to Brent prices and potentially widening the Brent-WTI spread.”
The July EIA Short-Term Energy Outlook said the discount, which averaged $18 per barrel in 2012 and rose to more than $20 per barrel in February, fell to less than $5 per barrel in early July. EIA said it expects the discount to widen to $8 per barrel by the end of the year.
|
