Analysis: Collapse in Brent-WTI oil spread spooks refiners, railways

(Reuters – May 9, 2013) After almost three years of churning bumper profits from the massive price gap between the world's two most actively traded crude oil contracts, traders, refiners, railways and investors are all asking the same question: Is the game finally coming to a close?


While many refining executives say they expect to continue to have access to cheap crude, oil future prices stretching all the way to next summer suggest a sub-$10 a barrel Brent-WTI spread could be here to stay. On Thursday afternoon in New York, the spread for May 2014 was near $8 a barrel, having traded above $14 a barrel as recently as February.

If WTI prices continue to move back toward Brent as pipelines come onstream, other inland crudes that remain reliant on rail to get to market will increasing trade at a discount to WTI, traders and analysts said.

Already Bakken crude prices at Clearbrook, Minnesota, which aren't traded on an exchange, have slipped to about $90 a barrel or around $5.50 below WTI and $13 below Brent, and could have further to fall. At the start of May Bakken crude was just $1 below WTI.

"Bakken crudes should start to price at bigger differentials to make crude-by-rail to the coasts economically viable, said Sandy Fielden, an analyst at RBN Energy in Austin, Texas.

"Ultimately, the competition is occurring at the refinery gate. Refiners will push the price of Bakken lower if taking it isn't worth their while."

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