Eternal truths about the oil market often die young.
One of the market's currently eternal truths holds that a wide spread between the prices of Brent and West Texas Intermediate crude oil won't last.
WTI this year has sold at an unusually persistent discount to Brent of an unusually large $20-25/bbl.
For refiners in the US Midcontinent, the spread represents found money. They sell products priced against markers used by everyone else but now can run comparatively cheap feedstock.
It's a big advantage. But when the Brent-WTI spread disappears, the Midcontinent refining advantage will vanish, too.
Most observers say that will happen when pipelines open to carry more crude to the Gulf Coast from Cushing, Okla., where tanks are now full, and when Libyan crude exports resume to compete with Brent.
Or so says the eternal truth. Deutsche Bank has other ideas.
"We increasingly believe," says an Oct. 18 research note, "that when the infrastructure is developed to release inland corridor excess oil supply and allow WTI-priced grades to reach the coast the net effect will be to lower coastal US crude prices relative to Brent rather than narrow the differential between US crude prices and international/Brent prices."
Why would that be?
According to Deutsche Bank analysts, North American crude supply is growing and can't be exported from the US. The net effect will be lower US imports.
"OPEC will keep the market for Brent tight," the analysts say. "US E&P will keep the market for US crudes loose."
If that's correct, refiners in the Midcontinent and Rocky Mountain regions can expect continuation of the Brent-WTI spread.
And instead of closing the spread, new pipelines will carry the golden effect on feedstock costs to refiners on the Gulf Coast.
And the rest of us, if Deutsche Bank is correct, will have yet another reason to doubt the eternal truths that pop up so regularly about oil markets.
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Bob Tippee | Editor
Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.
