RBN Energy With A Great Post For Newbies On The WTI-Brent Oil Spread

Active rigs:

	6/11/2014	06/11/2013	06/11/2012	06/11/2011	06/11/2010
Active Rigs	188	187	210	169	125

RBN Energy: talk about coincidence. I mentioned the "spread" last night before going to bed, and this morning, it is "the" topic for RBN Energy. Folks might want to save this article, although over time it will be archived, available only for subscribers. RBN Energy has a long, long post on the WTI-Brent spread.

My post was at 11:52 p.m. CDT last night.

Here's the background but you will have to go to the RBN Energy link for "the rest of the story":

After tracking within $1/Bbl or so of each other for years, international benchmark Brent crude suddenly began to trade at a higher premium to US benchmark West Texas Intermediate (WTI) in 2010. The Brent premium widened out as far as $28/Bbl in November 2011 and averaged $18/Bbl in 2012. But during 2013 the relationship calmed down some to average $11/Bbl and in 2014 so far has averaged $8.11/Bbl – closing lower at $5.17/Bbl yesterday (June 10, 2014). Today we provide an update on the Brent/WTI crude price relationship.

Current US crude production is over 8.4 MMb/d – up 50 percent since the start of 2011. The rapidly changing dynamics of the US crude market over the past three years as a result of this surge in production have caused upsets and volatility in crude oil price relationships. None more so than between the two most widely traded crudes in the world – US benchmark and CME NYMEX futures delivery grade West Texas Intermediate (WTI) and its international rival North Sea benchmark Brent.

WTI and Brent are both light sweet crudes with similar refining qualities that should be priced about the same if they are trading in the same market.  Historically that was the case before 2010 and WTI and Brent prices tracked closely - with WTI generally having a slight premium over its international rival – reflecting the freight cost to ship Brent to the US. At this time, Brent and similar light sweet crude grades were regularly imported at the US Gulf Coast since domestic production did not meet local refinery needs. But a little over three years ago in August 2010, WTI began to trade at a discount to Brent because of a build up of crude inventory at the Midwest Cushing, OK trading hub. Growing crude production in North Dakota and Western Canada overwhelmed Midwest refinery needs and got caught in a Cushing glut because of inadequate pipeline transport capacity to Gulf Coast refineries. The WTI discount to Brent widened out as far as $28/Bbl in November 2011 and averaged $18/Bbl in 2012. In effect US domestic crude was landlocked at Cushing and its price was heavily discounted versus coastal grades.

***************************

The Wall Street Journal

If you haven't heard, Eric Cantor, the 2nd-randing Republican in the US House of Representatives, and a huge mover in the immigration debate, lost in the GOP primary to a Tea Bag candidate. The challenger was outspent 5 - 1. The challenger is said to have spent about $250,000 for the campaign. It's the lead story today in The WSJ.

Disclaimer: this is not a political blog. Do not make any political decisions based on what you read here or what you think you may have read here.