Brent-WTI Crude Undergoing "Fundamental Change"

 
on September 13 2012 10:03 AM

Gap Between Benchmarks Likely to Halve

The relationship between Brent and West Texas Intermediate crude oil benchmarks appears to have undergone a "fundamental change" that will lead to the price gap between the two shrinking to less than half recent levels, the Energy Information Administration said in its This Week in Petroleum Report.

Brent's price premium to WTI, which averaged $19 a barrel on spot markets during August, may decline to $9 be the end of 2013 as excess U.S. supply balances out, the EIA said. The premium should narrow further in 2014 because of expanding pipeline capacity to deliver WTI crude from Cushing, Okla., storage facilities to refineries along the Gulf of Mexico. Prior to 2011, the Brent was typically within $5 of WTI.

"New pipeline capacity from Cushing to the Gulf Coast will make it unlikely that light sweet crudes will move from the Gulf Coast to Cushing for delivery against WTI futures contracts as in the past," the EIA said. "This suggests that the historical WTI premium to Brent in the futures market is unlikely to return."

In NYMEX trading September 12, WTI futures for October delivery fell 16 cents to $97.01 a barrel, while Brent "Look-Alike" futures rose 59 cents to $115.40 a barrel.

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