20 July 2013 – West Texas Intermediate crude became more expensive than Brent for the first time in almost three years as pipeline and rail shipments helped clear a bottleneck that reduced the price of the U.S. benchmark.
WTI hadn’t been higher than Brent since Aug. 17, 2010. The move was in intraday trading. WTI averaged $17.47 less than Brent in 2012 and traded as much as $23.44 lower than its European counterpart Feb. 8.
Improved pipeline networks and the use of rail links are helping to ease the North American oil glut created by rising production of crude from shale formations. WTI has jumped 18 percent this year, while Brent has decreased 2.5 percent as North Sea supplies stabilized after maintenance.
“The price change reflects the changing balance in the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s the perception of traders that you are not going to have the surplus in the U.S. longer term. We are having more rail and pipeline capacity.”
WTI for September delivery rose to as much as 3 cents above Brent futures for the same month in intraday trading. WTI settled at a 20-cent discount to the U.S. benchmark.
August WTI futures, which expire on July 22, increased 1 cent to $108.05 a barrel on the New York Mercantile Exchange, the highest level for a front-month contract in 16 months. The September contract advanced 6 cents to $107.87. Brent for September settlement dropped 63 cents, or 0.6 percent, to $108.07 on the London-based ICE Futures Europe exchange.
The difference between WTI and Brent widened to a record of $28.08 a barrel on Oct. 14, 2011, prompting Goldman Sachs Group Inc. to forecast in February 2012 that planned pipeline capacity would cause the spread to shrink. It was $19.29 at the end of last year.
Goldman closed its bet on the spread on July 2 after it narrowed to $5 a barrel.
Since the start of 2012, new and reversed pipelines have boosted capacity to Houston by almost 1.2 million barrels a day, with 850,000 more coming online by the end of the year, according to data compiled by Bloomberg.
Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) switched the direction of the Seaway pipeline last year to move barrels to the Houston area from Cushing, Oklahoma, the hub that serves as the delivery point for WTI futures traded on the Nymex.
Magellan Midstream Partners LP (MMP)’s Longhorn pipeline expansion and Sunoco Logistics Partners LP (SXL)’s Permian Express line are expected to divert more crude from Cushing in the third quarter, while TransCanada Corp. (TRP)’s southern leg of Keystone XL will increase capacity from Cushing to Houston by the end of the year.
“The dynamics are changing,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s a sign that oil is not just sitting in Oklahoma anymore. We are getting oil out of the storage to the market.”
U.S. crude inventories dropped 6.9 million barrels in the week ended July 12 to 367 million, the lowest level since Jan. 18, the Energy Information Administration reported July 17.
Stockpiles at Cushing decreased 882,000 barrels to 46.1 million, the lowest level since Nov. 30, according to the EIA, the Energy Department’s statistical arm.
“The main factor has been de-bottlenecking of the pipeline systems around Cushing,” said Francisco Blanch, head of commodities research at Bank of America Corp. in New York. “WTI and Brent shouldn’t trade very far apart conceptually.”
North Sea crude production in July is set to rise to 1.94 million barrels a day, the most since April and 3.1 percent higher than a year earlier, as the main maintenance period for the region’s oilfields ended, according to loading program data compiled by Bloomberg.
U.S. crude output rose 89,000 barrels a day to 7.49 million in the week ended July 5, the highest level since December 1990, EIA data showed. U.S. production has climbed as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in states including North Dakota.