EIA: Brent dominates US gasoline price movements, not WTI

A recent study from the US Energy Information Administration would appear to weaken the argument that lifting the ban on US crude oil exports would raise domestic gasoline prices.

A recent study from the US Energy Information Administration would appear to weaken the argument that lifting the ban on US crude oil exports would raise domestic gasoline prices.

The study, which examined the relationship between crude oil and gasoline prices, found that the price of Brent, the international crude oil benchmark, is more important than the price of West Texas Intermediate, a US benchmark, in determining US gasoline price movements. The study showed this to be the case in all parts of the US—including the Midwest, where the Cushing, Okla., trading hub for WTI is located.

“The effect that a relaxation of current limitations on US crude oil exports would have on US gasoline prices depends on its effect on international crude prices, such as Brent, rather than its effect on domestic crude prices,” EIA said.

“The lower WTI prices did not result in lower US gasoline prices. Gasoline is a globally traded commodity, and prices are highly correlated across global spot markets,” EIA said.

As shown by the study, the prices at trading hubs around the world: New York Harbor, US Gulf Coast, and Chicago, as well as Singapore, the Mediterranean, and Amsterdam-Rotterdam-Antwerp (ARA) move within a relatively narrow band, and the prices between different points reflect the transportation costs associated with shipping gasoline from exporting markets to importing markets.

Evolving gasoline patterns

EIA notes, however, that global gasoline supply and demand patterns have been evolving. Gasoline demand in Asia, Latin America, and the Middle East has been outpacing gasoline production in those regions.

In the US, demand is declining but refinery production of gasoline is rising, resulting in increasing exports of US gasoline into the global market.

Because of these changes in the market and seasonal fluctuations in US gasoline demand, the gasoline spot prices in the US Gulf Coast or Chicago are now often the lowest in the world during fall and winter months.

According to the study, a change in current limitations on crude oil exports could raise the prices of US-produced oil. If higher prices for US crude were to spur additional production than might otherwise occur, the increase to global crude oil supply could reduce the global price of crude.

However, the extent to which US crude prices might rise, and global crude prices might fall, depends on a host of factors, including the degree to which current export limitations affect prices received by US producers, the sensitivity of future US production to prices changes, the ability of US refiners to absorb domestic production, and the reaction of key foreign producers to changes in the level of US crude production.

While EIA’s latest report provides directional insights regarding the implications for US gasoline prices of a possible relaxation of current limitations on crude oil exports, it does not address the extent of any actual change in US production or the US or international price of crude oil that might follow from a decision to relax or eliminate those limitations. EIA is undertaking further analyses that will examine those issues and expects to report additional results over the coming months.

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