Monday, March 28, 2011

WTI-Brent Spread Persisting

For background on this issue, see here (also see some good links commenters added).  This post is just an update that the situation continues, though it's not quite as pronounced as it was in February.  The graph above shows daily spot prices through March 22nd (last Tuesday).

One interesting question is this: now that they've diverged, which spot price appears to have a stronger influence on US oil product prices?  For gasoline (the most important product by far) the data looks as follows (with the most recent data for each series circled):

As you can see, both series are pretty much within the historical envelope, but Brent lies closer to the edge of it.  So the continued habit of US media stories quoting WTI based prices is not crazy.


Kenneth D. Worth said...

Suffice it to say that local land-locked prices (and Cushing is now just a local market) can diverge from the Gulf Coast/Brent price due to local supply and demand issues as well as pricing power on the part of various market participants.

For example, small producers in California typically get $1.50 a barrel less that the Gulf Coast price (after adjustments for specific gravity, etc.) even though the refining markets are right here, which doesn't make a lot of sense.

It is all a question of local supply and demand and pricing power which the major oil co's have and the small producers (including the State of California) don't, in the case our local market.

Something similar is going on in Cushing, very likely. Connoco has the pipeline going into Cushing but is such a major refiner in that part of the country that it has no interest in limiting supply to Cushing and driving up its input costs.

Brent really is becoming the world benchmark, and no one other than Wall Street really cares about the price in Cushing anymore so far as I can tell.

Gary Cosby said...

not so much "local" as east versus west of the Rockies. See here:

The prices Chevron in CA is paying is tracking Brnt very closely. When a supply balance is acheived in Cushing, WTI prices will rise to that of Brent.