Brent tops WTI as benchmark

Sam Fletcher
OGJ Senior Writer

As the international benchmark other crudes are priced against, “West Texas Intermediate is dead, long live North Sea Brent,” said analysts in the Houston office of Raymond James & Associates Inc. WTI’s recent disconnect with other crude prices in the global market “is here to stay—for awhile,” they predicted.

For some 50 years, WTI traded at the key Cushing, Okla., hub as proxy for global oil prices and at a slight premium above most other crudes because of its low sulfur content and its high API gravity. Occasionally, this normal trading pattern has been disrupted for brief periods, such as the 2007 refinery fire in Sunray, Tex., or the US oil demand collapse in 2009 that led to $4-5/bbl discounts on WTI. But those blips self-corrected within months.

During a temporary blowout in the WTI-Brent price spread in February 2009, Raymond James analysts said, “The main reason for the roughly $5/bbl WTI discount was that oil demand in the US took a steeper hit than in just about any other major economy. This was not surprising, given that the US was the epicenter of the global economic crisis.” However, they said, “Unfortunately for US oil producers, it appears this disconnect is more structural in nature than prior disconnects.”

US demand has recently rebound faster than either Europe or Japan, while the spread between WTI and other types of crude has blown out to unprecedented levels,” Raymond James analysts said, with Brent “at a huge $15.02/bbl premium” to WTI at the close of trading Feb. 11.

Infrastructure problems
“That tells us the current glut at Cushing is not a function of cyclical or temporary supply-demand interruptions, but rather a longer-lasting infrastructure problem,” Raymond James analysts said. “Specifically, an increasing amount of inbound oil from emerging horizontal plays in Canada, the Bakken, and Permian basin has outpaced the outbound pipeline capacity.”

Cushing storage has a major influence on WTI pricing due to pipeline bottlenecks that cause more oil to accumulate at the hub than can be shipped to the Gulf Coast. Earlier this month, Cushing inventories reached the highest level on record.

The outbound transportation bottlenecks will force WTI to trade at a discount to other crudes though 2011 and into 2012. “That means WTI will become much less relevant than it has been historically. This is true for US oil producers [who] don't transport their oil to Cushing and even more so for companies with international operations,” the analysts said.

Raymond James analysts said, “It appears that the long-term solution to the glut—more outbound pipeline capacity at Cushing—will take at least 18 months to materialize. With this in mind, we have initiated our first-ever forecast for Brent, which we believe will be the principal benchmark for global oil prices for the foreseeable future. We are projecting a full-year 2011 Brent average of $97.50/bbl (vs. $90/bbl for WTI), followed by $104.50/bbl in 2012 (vs. $100/bbl for WTI). While the current record-setting WTI discount vs. Brent should narrow over time, we doubt that WTI will revert back to its traditional premium until 2013 at the earliest.”

The WTI contract for March closed at $85.58/bbl on Feb. 11 in the New York Mercantile Exchange, with a net loss of $3.45/bbl during that week, compared with a net gain of $1.60 to $101.43/bbl during the week for Brent as the two benchmarks continued to diverge, said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

Meanwhile, he said, “Most of the rest of the world is already paying over $100/bbl for crude.” In addition to the higher price for Brent, Louisiana Light Sweet crude closed at $103.08/bbl, and Urals crude at $98.07/bbl. “In other words, global and US coastal oil (and oil product) prices are likely to be much higher than WTI for the next 18 months,” Zhang said.

(Online Feb. 14, 2011; author’s e-mail: samf@ogjonline.com)

Related Articles

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

BHI: US rig count forced down by large losses in Texas

12/12/2014 Forced down by large losses in Texas and specifically the Permian basin, the US drilling rig count plummeted 27 units to settle at 1,893 rigs worki...

More West Texas gathering, processing to come onstream

12/09/2014 EagleClaw Midstream Services LLC, Midland, Tex., has bought natural gas gathering and processing in Reeves County, Tex. The company declined to ide...

ConocoPhillips slashes 2015 capital budget

12/08/2014 ConocoPhillips has elected to reduce its 2015 capital budget to $13.5 billion, down 20% compared with this year’s budget. The news comes on the hee...

Plains All American to expand Cactus pipeline takeaway capacity

11/25/2014 Plains All American Pipeline LP (PAA) plans to provide additional pumps to increase the takeaway capacity of the Cactus pipeline in response to hig...

Encana completes acquisition of Athlon Energy

11/13/2014 Encana Corp. now holds a premier 140,000 net acre spread in the oil-rich Permian basin after successfully acquiring Fort Worth-based Athlon Energy ...

BHI: US rig count down slightly during October, past week

11/07/2014

The US drilling rig count dropped 4 units to settle at 1,925 rigs working during the week ended Nov. 7, Baker Hughes Inc. reported.

PAA to buy BridgeTex interest from Oxy in $1.075 billion deal

11/06/2014 Plains All American Pipeline LP (PAA) and Plains GP Holdings LP have signed an agreement with Occidental Petroleum Corp. to purchase Oxy’s 50% inte...

Lone Star begins construction on third Mont Belvieu frac unit

11/06/2014 Lone Star NGL LLC, a joint venture of Energy Transfer Partners LP (70%) and Regency Energy Partners LP (30%), both of Dallas, has begun constructio...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected