A quick graphical update on oil prices. Brent has dropped to the low end of the range of $100-$120 that it's traded in for the last couple of years. At this level it strikes me as cheap - Saudi Arabia isn't going to let it go much lower (at least not for any length of time), and any number of things in the world could go wrong to make it go higher. In particular, I continue to have more faith in the future appetite of Chinese and Middle Eastern motorists to consume oil than US frackers to find it.
What's also interesting is that the Brent-WTI spread has halved in the last couple of months. Robert Campbell has a column arguing that the positive spread we've been living with since early 2011 is pretty much going to be over:
Already the balance at Cushing is not as favorable as it was a year ago. Stockpiles at the hub are poised to drift lower through the summer and with not one, but two major new pipelines requiring perhaps 8 million barrels of linefill between November and March 2014, the imbalance between inbound pipeline capacity and outbound capacity is becoming acutely visible.
Those refineries like BP's 405,000 barrels per day Whiting, Indiana plant, which are directly connected to Cushing but have the option of sourcing oil from many different markets, will cut their demand for Cushing barrels as margins erode.
But if the imbalance persists, the blow will fall hardest on refineries that have no alternative supplies. The golden age of the refinery next door to Cushing is at an end.