Monday; Spearfish-Like Oil Heavily Discounted At Gulf Coast

Active rigs: 184

RBN Energy: Brent and WTI take separate paths.

The Brent premium to West Texas Intermediate (WTI) on Friday (October 18, 2013) was $9.14/Bbl – indicating a new disconnect between US crude prices and international levels. Unlike last time a big Brent premium to WTI opened up in 2010 the price of Light Louisiana Sweet at the Gulf Coast is still tracking with WTI rather than following Brent. This suggests that the US Gulf Coast is long crude at the moment and that imports of Brent priced crude are not required. Today we discuss the current Gulf Coast crude market.

Note: "imports of Brent-priced crude are not required."

I think we may close the nominations for the 2013 Geico Rock Award and simply give it to the publisher of The Dickinson Press. 

More from the RBN Energy story:

This sudden divergence in the Brent price runs counter to the thinking of many analysts. That is because it signals that US Gulf refineries currently have adequate crude supplies and do not need imported barrels – certainly of light crude but also of medium grades as well -  i.e. any crudes with prices linked to Brent. If there were demand for these imported barrels then theoretically the price of LLS would be tracking closer to Brent because those imports would compete with LLS for the attention of Gulf Coast refiners.

With LLS at a near $6/Bbl discount to Brent the Gulf Coast is not attracting imports.

Why is that such a shock? After all, US production has been increasing in leaps and bounds and we know that a lot of shale crude has been arriving at Gulf Coast refineries from North Dakota, the Permian Basin and the Eagle Ford. The reason for the surprise is that Gulf Coast refineries were (up until early October) running at over 90 percent of capacity and although more domestic crude is making its way to the region, most believed that refiners still need plenty of imported supplies to make up their feedstock requirements.

But this week, prices seem to be telling us that the Gulf Coast is awash with crude supplies. LLS crude is trading at a $3/Bbl premium to WTI – less than the cost of transport from Cushing to the Louisiana Gulf Coast (where LLS is delivered at St. James). The Houston price for WTI is tracking neck and neck with LLS. So Louisiana refiners are getting adequate supplies from local offshore production, barges from Corpus Christi or rail from North Dakota and have no need for Cushing barrels. In any case the current work to reverse the Ho-Ho pipeline means there is no pipeline link from Houston to St James. Even heavy crudes look to be over supplied at the Gulf Coast at the moment.

The price of two heavy sour grades – West Texas Sour and Southern Green Canyon  - were discounted last week by more than $7/Bbl to WTI due to low demand for these crudes by Houston refineries. In short – Houston and Louisiana Gulf Coast refineries appear to have plenty of crude.