19 Feb, 2012
Posted by: admin In: News
On Friday’s close, London Brent was trading at $45.17 and New York’s WTI at $37.07 a barrel. That equates to a difference of over $8 or, in other words, Brent is trading at almost 22% higher than WTI.
One would have thought the market fundamentals for both would be relatively the same. Hence, why the large difference in price?
1 | es
This is from AP, published on Yahoo today:.
“Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows…
The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.
That foreign oil sells in some cases for $10 more per barrel — and that doesn’t even include shipping.
Brent North Sea crude, which feeds some East Coast refineries — and therefore winds up at many gas pumps around America — now costs about $7 more per barrel than the West Texas crude. Deutsche Bank analysts say the trend should continue.
Historically, West Texas International crude has cost more. So nobody bothered building the necessary pipelines to carry it beyond the nearby refineries in the Midwest, parts of Texas and a handful of other places.
Now that the premium oil is suddenly very inexpensive, refiners elsewhere can’t get their hands on it.
“It’s so cheap,” said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. “But you can’t just build a pipeline to everywhere. We know we can’t get it.”
Tesoro’s refineries in North Dakota and Utah use locally drilled oil and Canadian oil, which also has been running about $10 more per barrel than West Texas crude.
So why not build more pipelines? Because investing billions of dollars over several years makes no sense when the prices could just flip a year from now to where they were before.
“How long is WTI going to be cheaper than Venezuelan oil? Than Canadian?” asked Charles T. Drevna, president of the National Petrochemical and Refiners Association. “You just don’t build a pipeline like that…”
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AP Energy Writer John Porretto reported this story from Houston. Associated Press Writers Jennifer Malloy and Ryan Nakashima in Los Angeles contributed to this story.
2 | raysor
Presumably becuse there is not as much Brent (depletion of the North sea oilfields) and the demand is greater. Brent is much different to other crudes. In a way it is inferior because it is not as heavy. There are less end propducts that come from it in the refinery process. It is good fro petrol and intermediate products.
