Lower Pull Weakens WTI Versus Brent

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US oil price benchmark West Texas Intermediate (WTI) is losing value against Europe’s Brent as Midwest refiners run less domestic oil and US crude exports falter. At a discount of $2.60 versus Brent, WTI is now $1.10 cheaper than a month ago and moving closer to the average $1.50-$4.00 range established since the start of the pandemic. Adding to the pressure on WTI, which is priced at the Nymex delivery point of Cushing, Oklahoma, are rising imports from Canada that feed refiners in the US Midcontinent. Since the start of the week, WTI has been whacked by large sales of futures contracts, knocking $6 per barrel off Friday’s $73.95/bbl close (related). Without WTI weakening versus Brent, the loss would have been closer to $5. Oil Anchor The US benchmark price is the guide for pricing most of the nation’s 11.2 million barrels per day in oil production, and with WTI losing value, all other grades see their value slip as well. The recent relative strength of WTI in Cushing was mainly the result of Midwest refiners ramping up runs from early June to more than 4 million b/d through mid-July, which has since slowed to 3.7 million b/d. These refiners were making stellar money on running light, sweet WTI as gasoline showed a profit margin of $25/bbl, while diesel was clocking up $20/bbl cracks. Even though US stocks grew overall in the week ended Jul. 30, Cushing drew for the eighth straight week. Midwest refiners pulled inventories at Cushing down from 45 million bbl at the start of June to 35 million bbl at the end of July. That made prompt WTI more valuable in Cushing versus the Gulf Coast, and Midland producers have started sending more oil to the former instead of exporting it via the latter. “We've seen more movement up-basin," said Jeremy Goebel, executive vice president of midstream firm Plains All American. Late Summer Build Even with more Midland oil flowing to Cushing, inventories there continued drawing and they are now the tightest since the start of 2020, before the pandemic hit the US. But the WTI forward curve signals that Cushing stocks are building again in August as the prompt WTI premium versus later deliveries is narrowing. That means lower refinery runs, higher Canadian imports and flows from Midland to Cushing are having an impact. On the US Gulf Coast, exports of US sweet crude have been slow lately, leading WTI Houston to see its premium over WTI Cushing drop from 70¢ in early June to 30¢ in late July. US crude exports, priced off WTI Houston, fell to 2.7 million b/d in July from 3.36 million b/d in June. For WTI Houston to become more competitive in the international market, WTI Cushing would need to further widen its discount to Brent. John van Schaik, New York

Oil Demand, Oil Inventories, Oil Supply, Crude Oil
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