Today, WTI spreads continued their blow out, making the lives of all Goldman clients who expect the spread to collapse a living hell (with ever louder rumors of pending or already transpired energy fund blow ups). The spread between April-delivery WTI futures and Brent, the basis for European and West African crudes, widened $1.63 to $15.70 a barrel at 12:16 p.m. in New York. And since in addition to Brent, there are roughly 100 other grades, here is how WTI has been trading compared to some of the more illiquid varieties: Light Louisiana Sweet premium increased 30 cents to a
record $20.10 while Heavy Louisiana Sweet premium widened 30 cents to $20. Mars Blend’s
premium to WTI strengthened 40 cents to $14 a barrel, while
Poseidon increased 30 cents to $14.30 over the benchmark. Southern Green Canyon’s premium widened 40 cents to $13.
Thunder Horse’s premium to WTI strengthened 5 cents to $19.20.
West Texas Sour’s discount narrowed 35 cents to $6.40. Syncrude’s premium widened 50 cents to $8.50 a barrel.
The discount for Western Canada Select widened $1.25 a
barrel to $21 a barrel. Yet despite all these divergence dynamics, it is the WTI that is of critical importance due to its prevailing liquidity and utilization in the US. Luckily for Ben, the WTI glut just hit a record, allowing the Fed to continue pretending that the real price of oil is not well over $100. Per Bloomberg: "Stockpiles at Cushing, the delivery point for futures traded on the New York Mercantile Exchange, rose in the week ended Jan. 28 to 38.3 million barrels, according to the Energy Department. That was the highest level in records begun in 2004. Last week TransCanada Corp. started deliveries to the hub from its Keystone pipeline, which connects Alberta and Cushing." What is more interesting is recent speculation that ConocoPhillips may reverse its Seaway pipeline to relieve the Cushing excess. This would make economic sense for Conoco, yet for some odd reason the company refuses to proceed.
ConocoPhillips isn’t interested in reversing the Seaway pipeline that brings crude from the U.S. Gulf Coast to the fuel hub in Cushing, Oklahoma, where inventories of crude oil reached a record high last month.
“We don’t really think that’s in our interest because we need more crude in the area” to supply the company’s refineries in the Midcontinent, Jim Mulva, ConocoPhillips’s chief executive officer, said during a conference call hosted by ISI Group today.
“A reversal would send up to 350,000 barrels a day of crude from Cushing directly to Houston, significantly releasing pressure on the Cushing complex,” said JBC Energy GmbH, a Vienna-based researcher.
The 530-mile (853-kilometer) Seaway pipeline, operated by Enterprise Products Partners LP, carries crude northbound from Freeport, Texas, to Cushing. It also supplies refineries in the Houston area and has a usable storage capacity of 3.4 million barrels, according to the company’s website.
Rick Rainey, a spokesman for Enterprise, said in an e-mail that ConocoPhillips and Enterprise would have to agree to reverse the pipeline. Seaway’s former operator, Teppco Partners LP, said in 2007 it would consider a reversal.
Without getting conspiratorial, there is only one entity that would benefit from a market mispricing and a supply glut keeping prices lower, thereby not spooking US drivers into seeing surging gas prices. This is certainly a story worth following: should Conoco do the right thing for its shareholders and reverse Seaway, look for the various WTI spreads to collapse overnight.
And since the US now lives in a mispriced energy world too, below is a chart of gasoline prices in the EU, where gas is about 100% more expensive than in the US to begin with. Look for transportations protests in Europe shortly, as drivers say "basta a Bernank."