As Predicted: Brent/WTI Spread Narrows With Seaway Expansion/Reversal

The MDW has many, many stories on the Seaway pipeline expansion AND reversal. Don't think about one and not the other.

As predicted: Brent/WTI spread narrows. Both were up in early morning trading.

West Texas Intermediate climbed as much as 0.8 percent after a fifth weekly gain, the longest run of advances since August. The 500 mile (805 kilometer) Seaway line running from Cushing, OK, to Freeport, Texas, resumed service after shutting Jan. 2 to boost capacity to 400,000 barrels a day from 150,000 barrels, Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) said Jan. 11. Goldman Sachs Group Inc. (GS) said WTI’s discount to Brent will shrink to $6 a barrel in the second quarter, from $17 today.

“Cushing stocks should start to decline with the start of the extended Seaway pipeline,” ...  predicts the spread between WTI and Brent may narrow to $15 a barrel this quarter.

I track the spread, occasionally, at this post. 

Remember, the WTI/Bakken at Clearbrook spread is at this link; today it's about $5.00. Back on February 9, 2012, if you can believe it, the spread was almost $30.

Even CNBC has re-discovered the domestic oil and gas industry with another bit of trivia that most folks don't follow:

Brent crude production peaked in 1999 with 398 million barrels being produced that year. By 2007, however, it fell to 250 million barrels. Today, it stands at about 220 million. Most analysts expect the number to drop by another third by 2020. Brent is four different blends of crude with the 40's blend being the benchmark for prices. With the production of that blend being very low, only 280,000 barrels a day were produced in the third quarter. Due to most of it being taken out the ground and poor maintenance of production facilities, it opens up the contract for price movements that would not normally happen in a well supplied market. 

If that continues the world will look for another benchmark with stable pricing: cue WTI. In fact according to a recent article in the "Financial Times," ICE -- the platform where Brent is traded -- is already looking for ways to remedy the situation. It only makes sense that if this continues, the world will once again see WTI as the benchmark for crude, especially as its production is rising and the North Sea falling.

Quick: fill in the blanks:

About two months ago, the U.S. Department of Energy started using _______ crude as its benchmark for crude prices. It appears ______ could soon be the benchmark again, though.