Spread

You would expect the start-up of Enbridge’s Line 3 Replacement project early this fall to have eased the constraints on crude oil pipelines from Western Canada to the U.S. — and it did. You’d also expect that L3R coming online would narrow the price spread between Western Canadian Select and West Texas intermediate — but it didn’t. The latest widening of the WCS-WTI spread, one of many in recent years, is another reminder that oil price differentials can be affected by many factors other than pipeline capacity availability. In today’s RBN blog, we discuss the host of issues that affect this all-important Canadian oil price metric.

Crude oil production in Western Canada has been rising steadily for most of the past decade. Unfortunately, the same cannot be said for its oil pipeline export capacity to the U.S., which has generally failed to keep pace with the increases in production. Dogged by regulatory, legal, and environmental roadblocks, permitting and constructing additional pipeline takeaway capacity has been a slow and complicated affair, although progress continues to be made. The most recent tranche arrived last month with the start-up of Enbridge’s Line 3 Replacement pipeline, which provides an incremental 370 Mb/d of export capacity and should help to shrink the massive price discounts that have often plagued Western Canadian producers in recent years. In today’s RBN blog, we discuss the long-delayed project and how its operation is likely to affect Western Canada’s crude oil market, now and in the future.

The market is used to crude oil spreads in the Permian Basin being volatile. Fast-paced production growth, the addition of new takeaway pipelines — and the rapid filling of those new pipes — have all impacted in-basin pricing, and we’ve seen differentials from the Permian to its downstream markets — Cushing, OK, and the Gulf Coast — widen and narrow as supply and demand fundamentals have changed. But recently, things have gotten a lot wilder. In September 2018, the Midland discount to WTI at Cushing blew out to almost $18/bbl, then narrowed to less than $6/bbl only three weeks later, thanks largely to the start-up of Plains All American’s much-ballyhooed, 350-Mb/d Sunrise Expansion. As Sunrise started to fill up, price differentials initially widened for a brief period of time. But, as we kicked off 2019, the Midland-Cushing spread quickly shrank further and then flipped, with Midland last Friday (January 25) trading at a $1/bbl premium to Cushing crude. You might wonder, how the heck did that happen? In today’s blog, we discuss how things play out when a supply glut evaporates and traders are suddenly caught in a tight market.

This week on Monday WTI prices crossed the $100/Bbl mark for the first time since the end of December (they closed at $100.37/Bbl yesterday February 12, 2014). Brent crude traded at a $19/Bbl premium to WTI at the end of November but the spread has fallen to less than $10/Bbl in recent weeks ($8.42/Bbl yesterday). One of the biggest concerns hanging over the crude market is the fear of oversupply – both inside and outside the US – with the forward curves pointing towards WTI at $78/Bbl and Brent at $90/Bbl by 2020. Today we provide an update on the crude market.

This year has seen the WTI discount to Brent trading in a range from $23/Bbl in February to less than $1/Bbl in July then back out to $19/Bbl in November. On Friday (December 27, 2013) the WTI discount to Brent was $11.85/Bbl. During the year the spread behaved differently in three distinct periods - reflecting changes in the fundamentals as well as market sentiment. Today we review how the granddaddy of crude spreads fared this year.

The Brent premium to WTI has traded as wide as $23/Bbl this year but was down to 2 cnts/Bbl on Friday July 19, 2013. At one point during trading nearby WTI prices rose above Brent  – the first time that’s happened in three years. Yesterday (July 22, 2013) WTI August expired at 106.91 -  $1.14 lower than Brent September.  Today we look at why the spread has narrowed so rapidly and whether it will stay that way.

Yesterday the Intercontinental Exchange Brent premium to WTI NYMEX closed at $9.31/Bbl, its lowest value since January 2012. Spread watchers have long anticipated this narrowing but it throws a spanner in the economics of crude by rail shipments from North Dakota. Today we suggest that the Brent/WTI spread may have narrowed before crude supply fundamentals justify the move and that it could widen again quickly to $15 or higher.