wti discount

Back in October we posted a blog forecasting that the Brent/WTI price spread (at that time $22.76/Bbl) would narrow by the time of the Super Bowl (see Place Your Bets on Narrow Brent /WTI Spread for the Super Bowl). That turned out to be true (it is now $18.99/Bbl) but no Lambeau Leap for the RBN team.  A $19 differential is still a big number, and the crude supply congestion in the Midwest that led to a wide WTI discount to Brent in the first place continues. Last week the congestion showed every sign of moving to Houston and staying there at least until the end of the year. Today we present our post-Super Bowl Brent/WTI spread analysis.

Next Year’s Super Bowl (February 3, 2013) will provide the usual mix of brawn and hokey consumer advertising. RBN is betting that the WTI discount to Brent will fall well below its current $22.76 /Bbl before then. Early next year new pipeline pathways out of the Midwest and West Texas to the Gulf Coast and growing railcar traffic out of the Bakken will put an end to the Cushing Supply glut. Important signals today suggest the WTI discount should narrow sooner, but prices for the two crudes remained stubbornly far apart last week. Today we explain why the spread hasn’t narrowed already and the fundamental pressures that will overwhelm it come the spring.

So far this year WTI crude prices have fallen 22 percent from their highs in February 2012 to close at $85.99 /Bbl yesterday (Monday). Brent crude prices fell 21 percent over the same period to close at $99.73 /Bbl yesterday. WTI has traded at an average discount to Brent of $15 /Bbl this year. Historically WTI always traded at a slight premium to Brent. The crudes share similar qualities. In today’s blog we ask when will the WTI discount to Brent end, if ever?