Monday -- More Of The Same -- March 30, 2015

Active rigs:

	3/30/2015	03/30/2014	03/30/2013	03/30/2012	03/30/2011
Active Rigs	97	194	188	205	168

RBN Energy: WTI-Brent split.

This is the latest in a long running occasional series covering the ongoing relationship between U.S. domestic benchmark crude WTI and its international counterpart Brent. Historically (prior to 2010) these two crudes of similar (light sweet) quality enjoyed a close pricing relationship governed by the U.S. need to import light sweet crude to meet domestic demand – with Brent trading at a slight discount to WTI mostly reflecting freight costs. Huge increases in domestic light crude production from shale have changed the relationship over the past four years – including a WTI discount to Brent averaging $18/Bbl during 2012 as new production was stranded at Cushing. That prompted construction of a lot of new pipeline capacity from Cushing to the Gulf.

As new domestic supplies reached the Gulf Coast market – home to 50% of refining capacity and a traditional center of light crude imports - the U.S. reduced its dependence on crude priced against Brent in the international market. The result was that Brent prices disconnected from WTI at the Gulf Coast during 2013. This new situation was confirmed by the behavior of a third crude, LLS – the Gulf Coast light sweet crude benchmark. Instead of tracking Brent – as they had previously, LLS prices began to track WTI meaning that the Gulf Coast market for light crude had become domestic instead of international. We last posted a blog specifically about the WTI/Brent spread back in June 2014. At that time Brent prices were disconnected from the Gulf Coast market and a glut of domestic supplies kept LLS trading close to WTI. At that time of course, (early June 2014) crude prices were over $100/Bbl and the market was in backwardation – meaning futures market prices were lower than prompt month cash on expectations that excess supplies would exceed demand.

With the Cushing market once again oversupplied and a big stockpile weighing on the market WTI is likely to continue trading at a discount to both Brent and LLS. That should be good news for beleaguered rail shippers in North Dakota who have suffered because tighter differentials reduce the netbacks for crude-by-rail transportation versus pipeline alternatives. Otherwise any stronger recovery in crude prices is still largely dependent on higher market demand soaking up the current surplus. Except that is - for support for crude prices from another corner – a weaker U.S. dollar. We’ll take a closer look at the relationship between oil prices and the greenback later this week.

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US oil glut story grossly exaggerated? Source for this story -- OilPrice; article by Leonard Brecken.

Even using the EIA’s own data, production is up some 500,000 per day since October or 3.5M per week. So how can more than two times that be added to storage while gasoline demand accelerates to 5% year over year from low single digits? Refinery maintenance is part of it, yes, as well as seasonality as people drive less in absolute terms, so as production continues this would explain storage adds, but to this magnitude?

On a side note I was shocked to see that current storage utilization of oil isn’t even a record; unimaginable given that we are led to believe we are running out of storage! In any event, the seasonal effects will wane considerably in April into May as it always has.

This article seems to be somewhat at odds with RBN Energy. I post this story for the archives; I don't put a lot of stock into the article.

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OMG! Oil Executives Met With Geologists

This story interests me not at all -- considering the source and the somewhat dubious headline -- but I'm linking it because if I don't I will have any number of readers sending me the link. The story has to do with oil executives meeting with geologists following the flurry of Oklahoma earthquakes that some were associating with disposal of waste water by-product from fracking. Bloomberg is reporting at Yahoo!Finance. 

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The President's Bracket

In the Final Four, he got two of four. And he's an expert.

Meanwhile, I know nothing about college basketball, follow it not at all, and I got three of four correct in the Final Four. Just saying. [I filled out the bracket at the ESPN website.] And to the best of my knowledge, no one in the world predicted a perfect-64 bracket.