Via email a reader asks about the divergence between two international oil price benchmarks – Brent and West Texas Intermediate (WTI).
At EnergyBurrito, Matt Smith explains the once-reliable, now rocky relationship between Brent and WTI in “WTI and Brent Crude Oil Through Steve Carell and Ricky Gervais.” Gervais played district manager David Brent in the British comedy, The Office; Carrel played district manager Michael Stott in the American version of The Office.
In a style better written, more humorous and more informative than what I convey here, Smith explains that the problem with WTI is infrastructure at and around Cushing, Oklahoma, the pricing point for WTI crude oil contracts traded at the NYMEX. It has become easier to move oil from producing regions to Cushing than to move it from Cushing to refineries and consumers. Pipeline capacity out has been added, and more is on the way, but not so much that the Brent-WTI price spread will amend itself anytime soon.
So the question becomes, with WTI prices becoming so strongly affected by local-to-Cushing factors, will WTI cease to be useful as a global crude oil price index? Smith suggests (but doesn’t predict) that Louisiana Light Sweet may become the replacement benchmark.
Changing U.S. and Canadian oil production patters may be contributing to the Cushing problems. Domestic U. S. production is up in the last two years after 23 consecutive years of decline. Jonathan Fahey reports on the application of horizontal drilling and fracturing to oil production from shale, “New drilling method opens vast oil fields in US.”