Deutsche Bank: Pipelines explain WTI discount to Brent

Marilyn Radler
OGJ Senior Editor-Economics

HOUSTON, Feb. 16 -- Increased pipeline capacity to bring crude oil to Cushing, Okla., has resulted in more oil flowing into PADD 2 than the refinery system there can handle, and therefore the landlocked crude is trading at a persistently wide discount to comparable global crudes, according to a research note released this week by Deutsche Bank Securities Inc.

The current Brent-West Texas Intermediate spread is about $15/bbl. And although the spread corrects over the life of the futures curve, the price of WTI crude has moved structurally to a discount to Brent crude in a reversal of the historic premium that WTI has enjoyed, Deutsche Bank analysts Paul Sankey, David T. Clark, CFA, and Silvio Micheloto, CFA said.

The report says that since Western Canadian oil production has risen to 2.9 million b/d in 2010 from 2.2 million b/d in 2005 and will likely climb to 3.1 million b/d by 2013, and with only Kinder Morgan’s TransMountain pipeline able to transport oil to the West Coast, the vast majority of this production is landlocked. Increasing amounts of this crude as well as rising production volumes from the Bakken shale are being forced by pipeline into the US Midwest, with much of it landing in Cushing and adding pressure on PADD 2. Refineries there are enjoying the crude-cost advantage with the record price spread between Brent and WTI, while Gulf Coast refiners are exposed to more expensive crudes.

Two major trunklines have added a combined 1 million b/d of capacity from Alberta to the US Midwest. Completed last year, Enbridge’s Alberta Clipper line runs at 450,000 b/d capacity, and TransCanada’s Keystone pipeline can carry 591,000 b/d of Western Canadian crude to Cushing.

There are only two ways to relieve the pressure on WTI at Cushing, Deutsche Bank said: much stronger demand or more transport capacity out of Cushing. While the former is possible in an improving economy, it is unlikely to push the price of WTI back in line with Brent and other global crudes. Deutsche Bank believes the more likely pressure relief should come from additions to pipeline capacity.

The Keystone XL lines—one to Cushing from Hardesty, Alba., and one to the Gulf Coast from Cushing—are scheduled to start up in 2013, pending approval, with 700,000 b/d of capacity potentially expandable to 900,000 b/d. Deutsche Bank believes that despite environmental opposition, Keystone XL will be granted its permit from the US Department of State, although startup could easily be delayed until 2014.

With the current Brent-WTI spread, other potential projects to take oil to the Gulf Coast from Cushing could be pushed forward, the analysts said. These include the potential reversal of the Seaway crude line that runs between Freeport, Tex., and Cushing. Nameplate capacity of Seaway is 350,000 b/d, but apparent capacity when running heavy crudes to the Gulf would be 200,000 b/d, according to the report.

Enbridge’s proposed Monarch project, which would move crude to Houston from Cushing, is another possibility to relieve pressure on PADD 2. Monarch would have a light oil capacity of 370,000 b/d, expandable to 480,000 b/d, with a possible completion date of 2014, Deutsche Bank said.

There are multiple proposed pipeline projects that could take Western Canadian oil to the west coast for export to Asia or California, but all are either on hold or delayed due to opposition to licensing. These include Kinder Morgan’s TMX-1 expansions, Kinder Morgan’s North Leg, and Enbridge’s Northern Gateway projects. Deutsche Bank said that none of these are likely to be built before the last few years of this decade.

“The net effect has been a blow out in the differential between global crudes and WTI. We argue that Brent is the more representative crude. Although supply issues have affected that price to the upside, we believe that it is primarily global demand strength that has driven Brent to over $103/bbl, with less widening of differentials between that crude grade and other internationally traded grades,” the report said.

Contact Marilyn Radler at

Related Articles

KMI brings second Texas condensate splitter online

07/15/2015 Kinder Morgan Inc., Houston, has commissioned the second of two splitters at the company’s new petroleum condensate processing facility located nea...

Michigan DEQ report urges ban of heavy oils in Mackinac Straits pipeline

07/15/2015 Michigan’s Department of Environmental Quality’s Petroleum Pipeline Task Force issued a report that recommended that heavy crude and oil sands be k...

PHMSA orders Plains All American to keep Illinois pipeline shut down

07/15/2015 The US Pipeline and Hazardous Materials Safety Administration issued a corrective action order directing Plains All American Pipeline LP to keep a ...

Advocates urge US to end its crude export ban in Iran agreement’s wake

07/15/2015 Advocates called for removing the US ban on exports of domestically produced crude oil in the wake of the July 14 international nuclear weapons agr...

Operators seen still able to raise capital

07/15/2015 Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to...

MARKET: NYMEX crude oil prices rise following news of Iran deal

07/15/2015 Light, sweet crude oil prices settled higher on the New York market July 14 following overnight news that Iran reached a tentative agreement with i...

WPX Energy to buy privately held RKI E&P in $2.35 billion deal

07/15/2015 WPX Energy Inc. agreed to buy privately held RKI Exploration & Production LLC of Oklahoma City for $2.35 billion in a move intended to help WPX...

US House panel grills PHMSA’s interim chief over pipeline safety delays

07/14/2015 Members of a US House Energy and Commerce subcommittee asked US Pipeline and Hazardous Materials Safety Administration Interim Executive Director S...

Market seen balancing with OPEC at target

07/14/2015 Target-level production of crude oil by members of the Organization of Petroleum Exporting Countries would balance the oil market in 2016, accordin...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by
Available Webcasts

Better Data, Better Analytics, Better Decisions

When Tue, Oct 27, 2015

The Oil & Gas industry has large amounts of data stored in multiple systems which are purpose built for certain tasks. However, good decisions require insights based upon the data in all of these systems. These systems in turn do not talk to each other. So the process of analyzing data, gaining insights, and making decisions is a slow one and often a flawed one. Good decisions require accurate analytics and accurate analytics require superior/sustainable data quality and governance. This webinar focuses on:

  • The importance of data quality and governance
  • How technological advances are making data quality and governance sustainable in order to get the accurate analytics to make solid decisions.

Please join us for this webcast sponsored by Seven Lakes Technologies and Noah Consulting.


Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Emerson Micro Motion Videos

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