The Book Page -- Insulin -- September 25, 2023

Locator: 45578BIGPHARMA. 

Parity: WTI and Brent near parity. Link here. I used to track the spread; haven't done that in a long, long time. Historically, though I no longer know what "historically" means when it comes to oil, WTI sold at a premium to Brent. I forget when that changed but it was so long ago (at least in my mind) that "historical" seems to have less relevancy now except perhaps for the older oil traders.

• a reminder: WTI now part of the Brent blend;
• about $2.35 / bbl to carry WTI to blend with Brent
• knock off the transportation cost, and WTI / Brent almost at parity

A reminder:

The Brent benchmark has seen downward pressure since WTI crude was included on June 1 in the Brent crude basket that underlies the world's most traded benchmark contract. WTI Midland became the first non-European grade included in the basket, highlighting the change that the U.S. shale revolution brought about for the global oil market.

After WTI Midland joined the Brent benchmark, Brent has seen downward pressure because WTI shipments to Europe are much higher than the combined loadings of the other crudes underpinning the North Sea benchmark.

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The Book Club: Insulin

Link here.

WTI-Brent -- The New Benchmark -- June 2, 2023

Locator: 44834WTI.  

Link here. 

I understand oil is a commodity and I understand the concept of fungibility, but I can't but think this development won't be / will be bullish for American shale companies.

That WTI-Brent Price Reversal -- May 19, 2022

Link to Alex Kimani:

To be fair, the price of WTI should be higher than that of Brent, considering its sweeter and lighter quality. After all, WTI has an API gravity of 39.6 degrees and a sulfur content of 0.24%, while Brent has an API gravity of around 38 degrees and a sulfur content of somewhere around 0.40%. The lower the density, the easier it is for it to be refined into gasoline or diesel fuel. Conversely, the higher the density, or "heavier," the oil is, the harder it is to refine. 

However, since 2013, Brent has been the more expensive crude blend thanks to its status as the global oil benchmark and a better indicator of global oil prices. That is the case because Brent essentially draws its oil from more than a dozen oil fields located in the North Sea, while WTI is sourced from U.S. oil fields, including the pivotal Cushing Oil Field. 

According to ICE Futures, ~60% of the world's traded oil is priced off of Brent. But the crude hierarchy was upset for a brief moment a few days ago after WTI stole Brent's crown as the more expensive oil. 

On Tuesday, WTI price crossed Brent to trade at $115.4/bbl vs. 115.2/bbl, an anomaly that the experts are saying is an indication of how the market has been scrambled by the pandemic and the war in Ukraine ahead of the busy summer driving season.

The WTI-Brent spread is tracked here. 

See comments:

Now I remember what this is about, there was excitement about it happening a couple months ago, too... 

... Brent oil contracts roll off the board almost a full month before WTI contracts, which means price quotes on news sites are quoting prices for different months for the two benchmarks... 

... in this week's case, they'd have been seeing Brent prices for July and WTI prices for June...but the backwardation is insane; next month's prices have been running ~$3 lower for both.... 

... if they'd compare similar contracts, i.e., July to July, they'd find the Brent price is still higher...

Later:

WTI for June delivery rose $1.02 to settle at $113.23 a barrel in New York.
WTI for July, which has greater volume and open interest, rose 39 cents to settle at $110.28.
Brent for July rose 51 cents to settle at $112.55 a barrel.

American GulfCoast Select -- Happy One-Year Anniversary -- July 14, 2021

Oil: America's new benchmark. Link here. Previously reported but now a bit of the back story and Harold Hamm is center stage. Thank you to a reader. Great story!

American shale oil has a new benchmark, and a driving force behind it is one of the Bakken’s own.

The new benchmark is called American GulfCoast Select (AGS) and Continental’s Harold Hamm is among its architects.

The new benchmark was designed to rival the landlocked U.S. West Texas Intermediate futures contract, which is based on delivery to Cushing, Oklahoma, and which has typically been used to reflect the value of a barrel of Bakken crude oil.

The delivery location for WTI, however, is 500 miles from water, and that has led to market distortions in the past. Most notably, it led to negative $38-dollar futures contracts last year during the pandemic.

Brent, meanwhile, is priced on an island in the North Sea, with immediate access to tanker storage. That insulates Brent from market distortion like that caused by the supply glut caused by the Saudi-Russian price war during the pandemic.

The new benchmark is based on Gulf Coast delivery instead of a land-locked location, essentially giving shale a Brent of its own. That will better reflect shale oil’s value in the world market, and should prevent market distortions due to lack of storage infrastructure.

Hamm, in a recent editorial circulated by the Montana Petroleum Association, said the negative future contracts for WTI were a wake-up that the situation at Cushing, Oklahoma, through which a lot of Bakken crude oil still travels, was no longer tenable.

From Platts:

Platts AGS reflects the value of light sweet crude oil loading 15-45 days forward on an FOB basis from locations along the US Gulf Coast including Houston, Corpus Christi, Beaumont, Nederland, Texas City, and Port Arthur, with the most competitive location on a cargo-size normalized basis setting the price assessment.

This crude oil assessment reflects a typical cargo size of 700,000 barrels, with bids, offers and trades between 550,000 and 800,000 barrels eligible for use in the assessment but normalized to reflect the freight economics of the typical cargo size. The assessment reflects the Platts WTI Midland grade supplied directly from the Permian Basin on the BridgeTex, Longhorn, Midland-to-Echo I/II, Cactus I/II, EPIC, Gray Oak, and Permian Express pipelines with API between 40 and 44 and .2% sulfur limit, among other specifications.

Platts FAQs.  

Also at ArgusMedia. 

And here, with graphic.

And here, if I'm reading the story correctly, AGS runs about $1.00 to $2.00 over Brent.

See original blog post here.

Flashback, July 29, 2019 -- Is The Bakken At Risk For A Pipeline Overbuild -- RBN Energy

Link here.

If DAPL shutdown were to occur:

• CLR says it would not be affected; doesn't ship on the DAPL;
• CLR says it would affect Bakken light sweet by $1 - $2 / bbl:
• operators shipping on the DAPL have contingency plans ready to go, posted yesterday; some operators are already booking CBT (crude by truck) -- a third-world option.
  
• CBR: wow -- again -- CLR says a DAPL shutdown would impact Bakken oil by $1 - $2 / bbl

For me, shutting down the DAPL will be a "psychological / emotional" phenomenon more than anything else.

Most interesting to me:

• DAPL is getting more press than the situation regarding Brent. 
• Brent: trending toward production less than amount of oil that would be carried by DAPL + DAPL expansion.

CBR: look at that capacity. Blows me away.

• look at all the jobs a DAPL shutdown would provide
• reminder: BNSF generates 25% of all Warren Buffett's Berkshire Hathaway's revenue
• I assume there are CBR options for Enbridge pipelines at risk running between Canada and the US;

Bakken Oil Prices -- August 14, 2020

For mineral owners wondering why their recent royalty checks were so low, this was the note I sent to some interested readers:

If you want to see why our recent checks were so low, here are the oil prices for Bakken oil as reported by the State of North Dakota -- these numbers came out today:

Posted here: http://themilliondollarway.blogspot.com/2020/08/directors-cut-posted.html.

• today: $33
• July: $31.75
• June: $32.35
• May: $7.92 -- no typographical error.

The Market, Energy, And Political Page, T+46 -- July 16, 2018

Disclaimer: this is not an investment site. I am posting the SeekingAlpha article on Enbridge due to the relationship between Enbridge and the Bakken.

Enbridge: from SeekingAlpha; Fitzsimmons is a regular and knowledgeable contributor to SeekingAlpha, a contributor I enjoy following -- 

• Enbridge already announced C$7.5 billion in asset sales this year, more than twice managements original C$3 billion bull-year target
• the market appears to have ignored the asset sales, but has responded very well to positive news on the Line 3 Replacement Project
• further share price appreciation will likely be tied to progress on the earnings front -- and the Q2 report is due out on August 3, 2018
• also, discussion of PSX (Phillips 66); DCP; Line 3
• from the linked article (but there is so much more at the linked article)

Putin-Trump summit: I think this was a much more important "summit" than folks seem to think. My hunch: the mainstream media is completely missing the importance of this "summit." Trump also took advantage of being "in the area." He attended the NATO conference in Brussels, which put him within "same time zones" and just hours from Scotland -- he saw the Queen; the Prime Minister; and, his golf course -- and hours from Helsinki which gave him a chance to see Vladimir Putin. Great, great use of time. 

Putin-Trump summit: for folks paying attention, the anti-Trumpers, never-Trumpers, and the mainstream media were already reporting negative stories on Trump's nominee for the Supreme Court even before Trump had named a nominee. And we're being asked to believe the reporting coming out of the Trump-Putin summit? Those stories were written as soon as the "summit" was announced, months ago.

For Jane Nielson and Art Berman. From Reuters --

The world's biggest oil traders are counting hefty losses after a surprise doubling in the price discount of U.S. light crude to benchmark Brent in just a month, as surging U.S production upends the market.

For those that understand the alphabet soup, the spread is: WTCLc1-LCOc1.

Trading desks of oil major BP and merchants Vitol, Gunvor, and Trafigura have recorded losses in the tens of millions of dollars each as a result of the "whipsaw" move when the spread reached more than $11.50 a barrel in June.

Duck and hide: this is being reported in multiple British tabloids, but we will link the oilprice.com story.  There are actually two stories here. First, short term, Ireland needs to get its crude oil reserves out of the UK before Brexit; and second, long term, Ireland could become the first country in the world to quit fossil fuel investment altogether, after the Fossil Fuel Divestment bill was passed by the country's lower house last week.

We also learn in the article that EU countries must keep emergency stocks of crude oil and/or petroleum products equal to at least 90 days of net imorts or 61 days of consumption, whichever is higher.

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Woodworking Course

The granddaughters are kept busy with various "schools" throughout the summer -- computer coding, sailing, athletics, cooking, baking, etc.

Olivia was enrolled in a week-long, half-day only wood working course. No power tools were allowed due to liability issues so all sawing, sanding, and nailing was done "by hand."

Olivia made a "miniature" Adirondack chair for Sophia. Here she is putting on the finishing touches:

Explaining The Double-Digie WTI Discount -- The Bakken Is Not Mentioned -- May 31, 2018

I don't particularly care for this writer, nor the site. I haven't closely read the entire article, but it's probably as good as any article on this issue. For the archives.

Explaining the double digit WTI discount.

The Bakken is not mentioned but Platts discussed the Bakken at this post. 

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Mission Complete -- Finally

Wow, this voyage never seemed to end. Finally, the Nave Photon is scheduled to reach its destination tomorrow, June 1, 2018, after leaving LOOP, March 28, 2018.

The Nave Photon is tracked here.

Here is the original story: Second fully-laden VLCC has departed LOOP with export cargo.

The Louisiana Offshore Oil Port (LOOP) announced on Wednesday that this month it has successfully loaded its second VLCC for export and the vessel is heading for a port in Asia, according to Reuters. Navios VLCC Nave Photon was chartered by Houston-based Shell.

I'm not sure if the ship is bound for Singapore or China. Early on, its destination was said to be Singapore, according to "Marine Traffic," although press releases suggested its destination was mainland China. It seems it passed Singapore some time ago and its current position is near mainland China. I originally thought it was headed to mainland China like the first VLCC that departed LOOP earlier in the year.

I could probably sort it out -- but I'm too tired and I really don't care any more. All I know is that it is supposed to arrive at its Asian destination June 1, 2018.

So, will we see a report of a "third VLCC departing LOOP"? Probably not. Does anyone remember the third astronaut to walk on the moon? We hardly remember the second, much less the third.

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I haven't posted a video in a long, long time. I've simply been too busy. Need to find something.

This is as good as anything:

The House of the Rising Sun, The Animals

Wow, Wow, Wow -- Great Article On WTI-Brent Spread -- If You're Following The Bakken, This Is A Must Read -- November 7, 2017

This graph is an eye-opener:

And why is that important?

That's how important the DAPL was to the economy of North Dakota. I think I mentioned this on the blog once before: for many, many years I made donations to Native Americans in South Dakota but during the DAPL protest I sent them a note telling them I would no longer donate, and that they should quit sending me solicitations. Haven't heard from them since, and haven't donated since. Actions have consequences.

But I digress. The graphs are from an article at Bloomberg, "why WTI pries aren't going anywhere."

From the article:

While I emphasized the differences in speculative money flows to the Nymex West Texas Intermediate, or WTI, and Brent crude oil contracts, I didn't give the role of logistics the prominence it deserved. So here goes.

To recap, the spread between WTI and Brent crude prices began widening in late July and has recently blown out to about $6 or $7 a barrel.

Hurricane Harvey's disruptive impact in late August helped push that spread beyond $5. But it had been opening ahead of that and hasn't shown signs of closing since.
Besides Brent's international benchmark, Nymex WTI is suddenly trading at wide discounts to other benchmarks within the U.S., too.

Those premiums of roughly $5 to $6 for Louisiana Light Sweet and WTI delivered in Houston are big flags that something is up with the way oil is flowing within the U.S.
The Nymex WTI contract is settled physically at the pipeline and storage hub in Cushing, Oklahoma, which is hundreds of miles inland from the refining and export facilities along the Gulf Coast. The other  barrels, closer to the coast -- and, therefore, global markets -- are priced more in-line with Brent. Their premiums versus Nymex WTI jumped at the end of August as Hurricane Harvey's disruption kept barrels bottled up in Cushing.

But their continued strength and that other line on the chart above -- for barrels priced in North Dakota -- hint at other, more structural issues.

John Coleman, a senior analyst at Wood Mackenzie, points to the start-up of the Dakota Access pipeline in June. Dakota Access takes barrels from the Bakken down to Patoka, Illinois -- where they compete with barrels coming from Cushing. Better access to Midwestern refiners, as well as pipelines heading south from Patoka to ports on the Gulf Coast, helped close the Bakken discount to WTI and encouraged a bit more production in North Dakota.

Much, much more at the link. 

What Universe Do These Guys Live In? -- May 8, 2017

This is the headline:

This is the story from Reuters:

Benchmark Brent crude settled up 24 cents, or 0.5 percent, at $49.34 a barrel. U.S. light crude gained 21 cents to $46.43 a barrel.

Rebound? LOL.

Military Action "Moves" Oil -- Slightly -- T+76, April 7, 2017

Oil:

• Brent: 55.24
• WTI: 52.15
• Spread: about $3.00

Active rigs:

	4/7/2017	04/07/2016	04/07/2015	04/07/2014	04/07/2013
Active Rigs	49	31	93	194	187

RBN Energy: how new Permian-to-Corpus gas pipelines will affect coastal flows.

Where might all that gas go? As we’ve said in many blogs, the Marcellus/Utica region has made the Northeast essentially self-sufficient when it comes to gas, and has been pushing other producers out of the Midwest, the Southeast and other areas. So in many ways it comes down to exports, and Agua Dulce is key, not only for pipeline exports to Mexico but for gas supplied to the LNG export terminals in Corpus Christi and, perhaps, to other planned LNG terminals up and down the coast from Corpus.

So it seems quite probable that at least two—and maybe all three—of the Permian-to-Corpus pipeline projects we’ve been discussing will advance to construction. The question then will be – how much of the  gas flowing on those pipes to Agua Dulce be exported, and how much will need to work its way up the Texas coast and battle Marcellus/Utica producers for Texas Gulf Coast Industrial Corridor customers? Now that’s an interesting question that we’ll consider in an upcoming blog.

Scott Adams: the Syrian gas attack persuasion.

$50 Remains The Sweet Spot For The Price Of WTI -- January 10, 2017

From Platts:

Ten plays noted, from most greatest-to-least "break-evens." All are below $50, though Duvernay is right at $50. The best is Permian Delaware at about $32. Compare with the Bakken at about $34.

• Duvernay
• Uinta
• Anadarko Cleveland
• SCOOP
• Eagle Ford Oil
• STACK
• Bakken ($34)
• Permian Midland
• Denver-Julesberg
• Permian Delaware 

I was familiar with all of these, and all of them are linked at the sidebar at the right, with one exception: Anadarko Cleveland.

Anadarko Cleveland has been mentioned on the blog several times:

• February 19, 2016
• July 1, 2015 
• July 30, 2011
• May 2, 2011 

The Duvernay is in British Columbia.

$50 WTI / $55 Brent:

• won't help Saudi Arabia; currently Saudi Arabia's national budget based on $80 oil; historically had been at $100 oil
• keeps US gasoline at consumer-friendly price
• maintains US shale industry
• investors in public companies in US shale E & P may not do as well as in other sectors
• investors in public companies in US shale services may do better than in other sectors

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Short-Term Energy Outlook For US -- EIA

Crude Oil:

“The general decline in U.S. crude oil production that began almost two years ago is likely over, as higher average oil prices and improvements in drilling efficiency are giving a boost to output.”

“Final data are expected to show that U.S. oil production increased during the last three months of 2016, the first quarterly output increase since early 2015.”

“China’s oil production will continue to decline this year and during 2018 because of cuts in investment by oil companies.”

Gasoline/Refined Products:

“Despite higher pump prices, U.S. gasoline consumption is expected to reach a record high in 2017 because of a strong economy and higher employment.”

“Ethane is expected to account for almost half of U.S. liquid fuel consumption growth in 2018, as several petrochemical plants come online that use ethane as a feedstock in the manufacturing process.”

Natural Gas:

“U.S. natural gas production is expected to rise in each of the next two years, reversing the first decline in annual output in more than a decade that occurred during 2016.”

“U.S. natural gas exports are expected to continue growing over the next two years as several liquefied natural gas export terminals come online.”

Electricity:

“The average U.S. household will use 3% more electricity between December and March compared to the same period last year because of forecast colder temperatures than last winter.”

Coal:

“Coal is expected to make a modest comeback in 2017, accounting for a slightly larger share of U.S. electricity generation than natural gas in response to higher natural gas prices.”

“Higher coal use by the U.S. electric power sector in 2017 is expected to result in an increase in domestic coal production this year.”

Renewables:

“The amount of U.S. electricity generated by utility-scale solar energy is on track to double from 2015 levels to 1.2% in 2018, while wind power’s share of total generation over the same period is expected to increase from 4.7% to 6%, close to hydropower’s share of 6.5%.”

A Screenshot Worth A Thousand Words - March 21, 2016

Note the WTI-Brent spread:

A huge "thank you" to a reader who just sent this moments ago.

(With regard to WTI-Brent spread, remember that expiration dates for WTI crude and Brent crude are no longer "sync'ed." See RBN Energy earlier today. See first comment below.)

I track the WTI-Brent spread here. 

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The Rule Of Three

The "author" over at the Coyote Blog (linked at the sidebar at the right) has had any number of posts on light rail in Arizona; others of us have been more focused on California's "bullet train" to nowhere. We now have our third state with a light rail issue: Hawaii.

The New York Times reports a debacle that can only be compared to the "Big Dig" in Boston:

From the start — when Honolulu officials began talking about building a 20-mile elevated train line near the southern coast of Oahu — there were concerns. How much would it cost? What would it do to the character of a state that has long celebrated its natural beauty and isolation? Can an island in the middle of the Pacific Ocean handle the kind of ambitious public works project one would associate with urban centers like Boston and New York?

Eight years after voters in Hawaii approved a referendum clearing the way for construction of the rail line, many of the concerns that have been voiced during a 40-year debate over the project have turned out to have merit.

The project was initially projected to cost $4.6 billion, but that number now is $6.7 billion, forcing the city in January to approve a five-year extension of a general excise tax surcharge to help cover the overrun.

Too expensive to fail:

City officials are awaiting the opening of two sets of bids, covering the final 10 miles of the project, to see if even that is enough. At this rate, city officials said, it could have the distinction of being, on a per-capita basis, the most expensive transit project in the country’s history.

Yet at this point, even its most ardent opponents are resigned to its completion. Close to seven miles of concrete railway are already arching up to 40 feet over farmland and crowded streets, and pillars are in place for the first of 21 stations. Federal transportation authorities have contributed $1.5 billion to the project, which Honolulu would probably have to return if it were cut back or abandoned.

“People are very angry about it,” said Mayor Kirk Caldwell of Honolulu, as he drove through the streets of his city. “But we are now heading toward eight miles completed. It’s like we are pregnant — we can’t just stop and tear it down.”

And that estimated $6.7 billion for the total cost? Unlikely. State analysts are now penciling in a $7.1 billion cost. 

And so it goes.

Oh, not quite:

“What is happening is what most of us predicted would happen,” he said. “The way I look at it, it might hit $9 billion. They haven’t hit the hardest part yet.”  

He? Benjamin J. Cayetano, a former governor of Hawaii and longtime critic of the project, argued that officials lowballed the original estimates of what it would cost to win voter approval.

Stay tuned.

How Brent Calendar Expiration Changes Influence WTI-Brent Spreads During Contango (Or Vice Versa) -- RBN Energy -- March 21, 2016

RBN Energy: How The Brent/WTI Crude Futures Relationship Got Trickier. This is so cool. Back on January 26, 2016, I noted this change in the expiration calendar. I did not understand all the implications but I had some thoughts.

I am posting this for my benefit to help me understand this issue. I would recommend readers who are interested go to the RBN Energy link. I often make mistakes/misunderstand what I am reading/summarizing. 

Data points from the RBN article, first the background:

January 26, 2016:

• new rules stipulate expiration one month and one day prior to delivery
• the March, 2016, contract, therefore, expired January 29, 2016

How the Brent physical trading market works:

• traders buy and sell 600,000-bbl cargoes produced from North Sea crude streams (BFOE - Brent, Forties, Oseburg, Ekofisk)

Two distinct Brent physical trading markets

• "Dated Brent": transactions for BFOE cargoes that have been assigned to equity producers and given a 3-day lifting window for the buyer's vessel to pick up the crude
• because they an assigned load date, they are knonw as "Dated Brent"
• reporting agencies (e.g., Platts, Argus) assess and publish these prices
• "Paper Brent": BFOE "cash" market 
• for cargoes that have yet to be assigned a loading date
• traded for delivery during a specified forward month; further out into the future than dated Brent
• these forward trades then morph into dated cargoes once a load date is assigned; at least 25 days before the 3-day loading window
• BFOE cash market is linked to ICE Brent futures; the later not a physical market; only cash settled

The January, 2016, calendar change:

• a 15-day timing window for ICE Brent Futures and the 25-day Brent futures calendar resulted in markets being out of sync
• it took 4 years for ICE to implement a Brent futures change to better reflect the physical market
• the change finally came in with the March 2016 Brent delivery contract that expired on January 29, 2016
• the new expiration date mechanism is designed to accommodate at least a 30-day window between the contract expiring and deliver -- reflecting the 24-day window in the physical market as well as a 5-day additional grace period

How it affects the CME/NYMEX WTI futures market

• it turns out this is a big deal: because the prices or spreads between the two futures contracts are so often compared by analyst looking to understand the relationship between the US market (WTI is the benchmark) and the international market (Brent is the benchmark)
• there are also numerous trading strategies involving taking positions in the two crudes
• Both crudes are similar -- all things being equal the spread should be narrow

Now, the calendar dates for WTI:

• WTI is a pipeline-delivered crude that is traded based on US domestic pipeline scheduling
• physical WTI for prompt delivery (next month) has to be scheduled by the pipeline before the 26th of the month prior to delivery
• to reflect this, CME/NYMEX futures contracts expire 3 business days before the 26th of the month prior
• this becomes significant, because when comparing Brent and WTI, it is best to compare prices for the same delivery period
• up until the January 2016 change, one could compare like-delivery periods for all but a few days each month
• the old Brent contract "rolled" from one delivery period to another on/about the 15th
• the WTI contract followed on/about the 20th

How have things changed?

• the default spread between prompt Brent and prompt WTI is far less of an "apples to apples" comparison
• WTI prompt prices have not changed
• Brent now rolls to a new delivery month 16 days earlier 
• thus: for 2/3rds of every month, the spread compares "apples to oranges"
• look at the RBN Energy chart (Figure 1 at the link) to see the inconsistency in delivery periods
• prior to the calendar change, the discrepancy was irrelevant, averaging 15 cents/bbl over the courseof a year
• now, the February 2016 spread was $1.54/bbl higher 
• that "rather large" $1.54/bbl difference in February widened by differences in contango between the Brent and WTI futures market
• thus, the spread between WTI and Brent will be wider because of the contango
• repeating: the contango exaggerates the spread relationship whenever comparing two different delivery periods

Bakken-Brent Spread And US Crude Oil Imports -- March 2, 2016

Two connecting dots.

First, this from the weekly EIA report:

The Bakken crude oil spot price discount to Brent averaged $8 per barrel (b) in August 2015. It narrowed to average only $2/b in November 2015, and by January 2016 averaged $1.69/b (Figure 1). The narrower the spread between domestic and imported international crude, the more likely costal refineries will choose to run imported crudes rather than domestic supplies shipped via rail.

Second, from John Kemp's tweets earlier today:

US weekly crude oil imports were running at some of the highest rates in two years this past week. 

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Connecting Dots

Nursery Rhyme Rock, Wynona Carr
I was listening to that song when I was distinctly reminded of a "modern day" rockabilly singer, but I couldn't remember who that was.

This next video let me to her:

Finders Keepers, Wynona Carr
This is the rockabilly singer:

Finders Keepers, Tom Stormy Trio

Random Update Brent-WTI Spread -- February 15, 2016

I track the spread here, periodically. Remember, also, this change.

From February 8, 2016, a dynamic link:

Brent WTI Spread is at a current level of 1.93, an increase of 0.44 or 29.53% from the previous market day. This is a decrease of 2.29 or 54.27% from last year and is higher than the long term average of 0.7531.

From Yahoo!Finance:

NYMEX near-month WTI (West Texas Intermediate) crude oil futures prices fell 8.1% in the week ending February 5, 2016. WTI crude oil prices closed at $30.89 per barrel on Friday, February 5, compared to $33.62 per barrel for the week ending January 29, 2016. In comparison, Brent oil first-line futures prices fell 2% to $34.06 per barrel in the week ending February 5 from $34.74 at the end of the previous week. Thus, WTI crude oil prices fell more during the week, resulting in an increase in the WTI-Brent spread.

From Market Realist, February 10, 2016 (see first comment below; Market Realist may be comparing March apples to April oranges):

The current Brent-WTI spread is at $2.36 per barrel as of Tuesday, February 9, 2016.

Brent and WTI crude oil prices settled at $37.72 and $36.76 per barrel, respectively, on January 4, 2016. The Brent-WTI crude oil spread was $1.04 per barrel on the first trading day of 2016.

The lifting of the US crude oil export ban boosted US crude oil prices in early 2016. US crude oil prices also rose due to slowing US crude oil production. However, the long-term oversupply concerns and record production from OPEC (Organization of the Petroleum Exporting Countries) weighed on Brent crude oil prices. So Brent prices fell more than WTI, making the Brent-WTI spread narrow in early 2016.

US crude oil production has not slowed down in 2016 as expected. So US oil prices started to fall more than expected in 2016. But speculation of a collective production cut from OPEC and non-OPEC boosted Brent more than WTI in the last two weeks.

However, the fading ties of production cuts are putting pressure on oil prices. Rising supplies are also putting pressure on US oil prices. So the Brent-WTI spread widened in February.

By the end of the week, according to an e-mail from a reader, the WTI-Brent spread had gone to $3.75.

This was posted back on December 17, 2015:

Some analysts suggest WTI has to have a $4 premium to Brent to make WTI competitive; right now, WTI is selling about $1.10 less than Brent. The WTI-Brent spread will take on huge importance.

Brent Crude Oil Futures To Rollover Well In Advance Of WTI Crude Oil Futures Starting This Week -- January 26, 2016

Updates

March 21, 2016: RBN Energy has a great post on the expiration calendar for Brent. More in-depth notes here. 

Later January 31, 2016: moving one of the comments up here so it can be googled:  

Brent seems to be rolling to April today (January 29, 2015); they're now quoting prices for the CBJ contract, where J is April: http://www.nasdaq.com/markets/crude-oil-brent.aspx.  

WTI is still trading March (CLH): http://www.nasdaq.com/markets/crude-oil.aspx.

They must have a lot of oil in the small cubicles in those NYC skyscrapers, because they trade over a billion barrels of oil a day...see volume on top of the WTI chart; 1,340,572 contracts for 1000 barrels each changed hands today alone.

Later, January 26, 2016: a reader posted this comment, which I brought up here so that it is google-searchable (see comments below):

I caught the rollover on WTI last week. On Wednesday, as trading in the February contract for US crude was expiring, that price fell nearly 7% to close at $27.55 a barrel. Manwhile, while trading in February futures was closing out, the contract price for March delivery of US crude fell more than 4% to close at $28.33 a barrel. After that time, March was the only contract quoted, and there was no record of oil trading at $27.55 a barrel.

Later, January 26, 2016: with regard to the original post, a reader asked what the significance of the "rollover" date for Brent/WTI. I'm hoping a reader can come up with a 30-second soundbite to explain the significance. I'll ramble for awhile. And expose my ignorance.

The most important takeaway from this change is that it adds one more variability for traders to consider when trading oil futures.

I think the biggest change in tradiing oil futures is the fact there are no more cartels: OPEC has opened the spigots, telling its members they are free to produce as much as they want and sell it where they can. Likewise, the other cartel, the US cartel, no longer exists now that the US has relaxed its rules for exporting crude oil. From my perspective, it has become a free-for-all.

The second most important broad-brush data point to understand is the type of oil: heavy oil, light oil, high sulfur, low sulfur.

For the layperson at home, the third most interesting broad-brush data point is probably the "television crawler" -- and it's always confusing whether this is a spot price, a futures contract, or whether it is WTI or Brent (never Saudi's benchmark).

Thing would be so much simpler if changes in pricing (spot pricing and futures pricing) occurred at the same time for every "type" of oil from every source. I would assume the fact that the 5-day gap between Brent and WTI has now been "lengthened" to "three weeks" will make things that much more difficult to follow -- and that much more challenging for traders, though I assume smart IT folks will re-write the trading algorithms to include this new wrinkle.

The big question is not what the significance of this change is -- I think folks can come up with any number of ideas -- though I'm still waiting for a reader to come up with the "a-ha" comment, the "now I get it" comment but rather --- the big question is whether this change by the folks that manage Brent trading did this in response to the US relaxing its rules on exporting crude oil.

If Brent and WTI are competing for the same markets, is there some advantage to moving the expiration date / the rollover date up -- two weeks before your competitor makes the change? Is there some advantage for Ford to announce its rebates for next year's F-150 series two weeks before GM announces its rebates for its pickups?

And, again, maybe this is easier than I'm making it out to be. Maybe I'm completely misreading this. All I can say for sure is that it will take some time for traders / arm-chair analysts / CNBC talking heads to sort this out. Something tells me, it's a big deal. I just don't know the "Oh, now I get it" answer.
 

Original Post

We'll probably see this again (and again).

An EIA "energy cookie":

A change to the North Sea Brent crude oil futures contract will alter the way prices for Brent futures are compared to futures prices for West Texas Intermediate (WTI) crude oil.

Beginning January 29, the Brent contract will expire, or rollover to the next month, approximately two to three weeks before expiration of the WTI contract for delivery in the same month. Prior to the change, the Brent contract rollover was only five to seven days ahead of the WTI rollover. --- EIA

I guess I understand that.

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Inversions

I saw the headline in the WSJ today but forgot to link it. Glad to see it popped up in the NYT.

From The New York Times:

Monday’s announcement by Johnson Controls is just the latest effort by corporate America to flee the United States.

In the last year, Pfizer said it was leaving for Ireland, as did Medtronic, the medical device maker. Coca-Cola’s largest bottling company, after selling its domestic operations, is heading to Britain. (The company, Coca-Cola Enterprises, insists it isn’t for tax reasons.)

Until Washington lawmakers reform the tax code, we will continue to see an exodus of American companies from our shores in search of a lower tax rate. By my count, based on a series of conversations with investment bankers, there are probably at least another dozen deals of meaningful size being negotiated in the pipeline. The question is what it will take for Congress to not only take notice, but to pass legislation to thwart this steady corporate migration.

The Obama administration has taken action to rein in so-called inversion deals. Last year, the Treasury Department implemented a rule that an American company could not complete an inversion if it owned more than 60 percent of the combined company; Johnson Controls will own 56 percent of the combined company.

A bit more on Johnson Controls:

Congress approved a bailout plan worth almost $80 billion for General Motors and Chrysler, saving the automakers and, indirectly, suppliers like Johnson Controls.

By 2010, with its business back on track, Johnson Controls doubled the pay of Stephen Roell, then its chief executive, to more than $15 million.

Despite the federal government’s rescue — and hundreds of millions of dollars in tax breaks over the last several decades from states like Michigan and Wisconsin — Johnson Controls said on Monday it was renouncing its United States corporate citizenship by selling itself to Tyco International, based in Ireland, a deal struck in large part to reduce its tax bill, which it said should drop by about $150 million annually. (Wow, that's a long sentence.)

GE moved from Connecticut to Massachusetts for tax reasons. I'm starting to see a pattern here.

Not Ready For Prime Time -- My Thoughts On Repealing The Ban On US Crude Oil Imports -- December 27, 2015

Updates

December 28, 2015: in the original post I mentioned Harold Hamm. I see that he has commented on US crude oil, prices, and exports.
 

Original Post

 

I thought I had posted my thoughts on what the repeal of the crude oil export ban means for the US. I had sent e-mail comments to a reader with intentions to post those comments, but then I forgot. What little I have posted suggests I have been "confused" on the subject. It's a fluid situation (no pun intended), and it's likely my thoughts will change again. Whatever.

This is what I wrote to the reader in an e-mail (with some editing). It is probably not ready for prime time, but at least provides a more definitive look at what my thoughts are at the moment.

A couple weeks ago I wrote that the repeal on the ban to export US crude oil was not that big a deal because there was no market for WTI as long as Brent was less expensive.

Analysts at Raymond James said the same thing; that's where I first saw it.

But I've changed my position on that. The repeal of the ban is a huge deal, mostly because the concern about adequate storage is no longer an issue. It gets back to margins.

Without the ability to export crude oil, Harold Hamm was forced into leaving oil in the ground (DUCs) or paying Cushing's fees to store it. Now, however, if Harold Hamm can actually sell a bbl of oil to Vitol for more than it costs to store it or leave it in the ground -- then Hamm comes out ahead. In other words, Harold Hamm now has has a global market, not simply Cushing and the East Coast refineries, to consider.

More importantly, for the US economy, there will be a mini-boom, or maybe a big boom, as big construction companies start getting contracts for new storage areas along the Gulf Coast, new terminals in anticipation of increased exports, etc.

Again, this is not ready for prime time, but I at least wanted to get something down "on paper."

Bottom line for me: the lifting of the ban on US crude oil imports is a big, big deal. Too many analysts are focusing on one data point: the price of WTI. That focus is way too narrow. Most of us can't remember what the global oil market was like 45 years ago when there was no ban on US crude oil exports, so we don't have any perspective.

For the archives, two articles on the issue, one from The Los Angeles Times and one from The Albuquerque Journal:

• From the latter, lifting of export ban unlikely to fuel growth anytime soon.
• From the former, is it time to lift the ban?

From The Los Angeles Times, this may be the best summation (written before the ban was lifted):

Free-market advocates said the export restriction has created an economically irrational world with bizarre distortions.

"It's acted as a kind of subsidy for oil refineries of U.S. light-type of oil," said Arthur Herman, a senior fellow at the Hudson Institute, a conservative think tank in Washington.

What's more, he noted, the export ban already has an exemption for Canada, where the U.S. is shipping more than half a million barrels of crude a day. And this summer the U.S. agreed to allow some light oil exports to Mexico.

Christmas Eve -- December 24, 2015

Tweeting now (this is s a big story):

• Crude oil futures settle up as traders square books before holidays, dollar weakens; NYMEX Feb crude at $38.10/bbl, ICE Feb Brent at $37.89/bbl.

Posted earlier, from a Bloomberg article:

West Texas Intermediate, the U.S. benchmark crude, settled at $37.50 a barrel Wednesday, 14 cents higher than Brent, the international marker. Brent has been more expensive than WTI for most of the past five years, reaching a premium of $27.88 a barrel in 2011. 

Analysts suggest WTI needs to have a $4-premium to make it economical to export (transportation costs), but the Vitol story suggests "maybe not."

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Christmas Eve Dinner

I posted that so I could post this, Christmas Eve dinner.

My wife is in California. My charges -- our three granddaughters -- are in Colorado skiing with their parents. I have five glorious days to myself.

It began with dinner: Bitburger Pils, filet mignon (blackberry balsamic vinegar - olive oil - coffee - pepper marinade) and a huge pancake (secret recipe).

 I forgot the broccoli but I will do that tomorrow. The dinner needs a bit of color.

Who Will Be First? -- December 23, 2015

Updates

January 1, 2016: this ship has sailed. 

December 31, 2015: 24/7 Wall Street provides an update: 

Thursday's posted price from Enterprise for Eagle Ford crude is $33 a barrel. Last Saturday the posted price was $33.90. Since the export ban was lifted, the posted price of a barrel of Eagle Ford crude has risen by $1.87 a barrel. 

West Texas Intermediate has risen by the same amount, and North Dakota Light Sweet crude has risen by $2.30 a barrel. The moral of this litany: the price of crude does not appear to have much to do with proximity to a port where crude can be loaded for export.

That may all change as time passes, but any large near-term impact on crude prices really doesn't look like it's in the cards. The horse race to load and ship the first cargo is mainly a race for bragging rights. At this point, Conoco and NuStar appear to be leading into the backstretch.

I doubt these guys are doing this for bragging rights. 

December 30, 2015: bizjournals provides additional background to the story here --

Two Texas energy companies claim to have taken the lead in the race to ship the first U.S. crude oil following the end of a 40-year ban.

Houston-based ConocoPhillips and San Antonio-based NuStar Energy (NYSE: NS) announced on Dec. 30 they are loading U.S.-produced light crude oil at NuStar's North Beach Terminal in the Port of Corpus Christi. ConocoPhillips is selling the Eagle Ford light crude oil/condensate to international trading company Vitol. The loading is expected to be complete Dec. 31.

December 24, 2015: Bloomberg has the story here.

The U.S. restricted most exports of unrefined crude as part of its response to the Arab oil embargo that caused fuel shortages in the earlier 1970s. For decades it didn’t much matter, as declining U.S. oil production and rising demand put the focus on imports.

That started changing five years ago, when companies like Continental Resources Inc. and ConocoPhillips began ramping up oil production from shale rock in Texas and North Dakota, raising U.S. output by 65 percent and creating supply gluts that forced producers to offer steep price discounts.

U.S. companies were already allowed to export oil to Canada, and boosted shipments to almost 500,000 barrels a day this year. That’s more than some members of the Organization of Petroleum Exporting Countries export.

West Texas Intermediate, the U.S. benchmark crude, settled at $37.50 a barrel Wednesday, 14 cents higher than Brent, the international marker. Brent has been more expensive than WTI for most of the past five years, reaching a premium of $27.88 a barrel in 2011.

Original Post

 

This is a big, big story. I've only posted a few paragraphs from the story but the Platts story (linked below) is a must-read for those interested in the US light crude oil export story. I don't know if the link will eventually be broken, but I've archived the article.

In addition, for those interested in Vitol, there was an earlier post on Vitol. Pretty interesting.

Tweeting now: 

• Vitol to export first US crude oil cargo from Enterprise Houston terminal in first week of 2016: company.

From Platts:

Switzerland-based trading company Vitol Inc. is scheduled to load during the first week of 2016 a US crude oil cargo from Enterprise Products Partners L.P.'s Houston terminal, an Enterprise spokesman said Wednesday.

The 600,000 barrel cargo of domestic light crude oil is scheduled to load from the Enterprise Hydrocarbon Terminal (EHT), Enterprise said.

Enterprise made the announcement on its website Wednesday morning saying it had "agreed to provide pipeline and marine terminal services to load its first export of crude oil produced in the United States under the law enacted earlier this month."

The name of the crude oil is South Texas Sweet crude with a 46-48 API gravity.

More at the link.

Remember: less than a week ago, analysts said there was no market for US light crude oil. I thought the same thing. We were all wrong. Memo to self: send note to RayJa and Mr Hirs.

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Merry Christmas!

 Photo by daughter Laura, from Portland, OR.

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I'll Bet A 6-Pack On This One

I will bet that Bette Midler's carbon footprint is 100x bigger than mine, and 10,000x bigger than any one Syrian refugee. 

I will bet that Bette Midler's walk-in closet in her guest room is bigger than our entire 700-square foot apartment.

I will bet that Bette Midler's kitchen sink is bigger than our bathtub. 

One (of many things) that I won't bet on is who owns more SUVs: Bette Midler or Algore. Too close to call, but I would give the edge to Algore since he owns more homes.

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Meanwhile, Back At The Mall Of America ... 

BlackLivesMatter have just about worn out their welcome in the Twin Cities, I suppose. They're getting a lot more press than they deserve; it looks like the MOA demonstration was a bust, and the airport demonstration merely infuriated thousands of travelers. This is probably the best example of piss-poor planning -- disrupting Christmas shoppers and folks trying to get to the airport during the busiest season of the year. BlackLivesMatter certainly won few friends in MSP today. [Fail: at 8:00 p.m. Central Time, same day, this story was not even linked at Drudge Report. Turned out to be a non-story except for disrupting the lives of thousands of folks simply trying to get to the airport during the busiest time of the year.] [December 24, 2015, 9:01 p.m. Central Time: they continue to wear out their welcome. Politicians aren't watching; they are all on vacation. Law-abiding folks who just want to go on about their business are getting a mite tired of all this. By the way, another fail; the only national news media carrying the story is the most liberal Los Angeles Times. ]

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They Must Be Fracking In Reno

Or

Injecting Water Into Salt Water Disposal Wells

rgj is reporting:

That's the exact location of a magnitude 4.4 quake at 10:45 p.m. - the biggest in a swarm of six quakes that hit Reno - according to the Nevada Seismological Laboratory at the University of Nevada, Reno....

4.4 is a pretty good seismic event...