• 3 minutes Shale Oil Fiasco
  • 7 minutes "Leaked" request by some Democrats that they were asking Nancy to coordinate censure instead of impeachment.
  • 12 minutes Trump's China Strategy: Death By a Thousand Paper Cuts
  • 16 minutes Global Debt Worries. How Will This End?
  • 2 hours americavchina.com (otherwise known as OilPrice).
  • 1 day Everything you think you know about economics is WRONG!
  • 1 day Wallstreet's "acid test" for Democrat Presidential candidate to receive their financial support . . . Support "Carried Interest"
  • 2 days Democrats through impeachment process helped Trump go out of China deal conundrum. Now Trump can safely postpone deal till after November 2020 elections
  • 1 hour Forget The Hype, Aramco Shares May be Valued At Zero Next Year
  • 8 hours Natural Gas
  • 5 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 2 days Judiciary impeachment: Congressman says Sean Misko, Abigail Grace and unnamed 3rd (Ciaramella) need to testify.
  • 15 hours Winter Storms Hitting Continental US
  • 1 day 2nd Annual Great Oil Price Prediction Challenge of 2019
  • 2 days Quotes from the Widowmaker
  • 2 days Tesla Launches Faster Third Generation Supercharger
  • 4 hours My interview on PDVSA Petrocaribe and corruption
Robert Rapier

Robert Rapier

More Info

Premium Content

Why WTI Is A Global Oil Market Benchmark

Oil markets are global, and therefore oil prices around the world generally move in tandem. There are differences in oil prices based on quality and geography, but the fungible nature of oil usually prevents specific benchmarks from getting too far out of line with other benchmarks.

In the U.S., we are most familiar with the West Texas Intermediate (WTI) benchmark and the internationally traded Brent crude. WTI is of slighter higher quality than Brent, and prior to about 2006 WTI almost always traded at a $1-$2/barrel premium over Brent.

In 2007, that WTI premium became a WTI discount, which grew to more than $10/barrel from 2010 through 2013.

(Click to enlarge)

WTI and Brent Prices 1987 to 2017

What happened during those years? The U.S. government had a crude oil export ban in place, so the shale oil boom meant that the U.S. was suddenly and unexpectedly awash in crude oil.

U.S. refiners could refine that oil and export finished products — which they did. But domestic refiners had invested billions to process imported crudes that were becoming heavier and more sour. Because of the capital expenditures that had been made to process this oil, the economics favored heavy, sour crudes over the light, sweet crude oil from the shale oil plays.

Thus, even though crude oil is globally traded, because of the crude oil export ban, WTI was really a more localized market (similar to U.S. natural gas). Refiners had an abundant crude supply, which for them wasn’t the ideal quality. There were also logistical constraints in getting some of the new production to refiners. So, the WTI discount developed.

In December 2015, President Obama signed a $1.15 trillion spending bill that gave renewable energy producers a number of concessions in exchange for repealing the crude oil export ban. Refiners lobbied hard to preserve the export ban, while crude producers lobbied to get it repealed. Related: Could This Material Kill Lithium-Ion Batteries?

It didn’t take long for the repeal to have an impact. Through 2015, crude oil exports to Canada — which was exempt from the ban — had been growing. There were also a small number of exports to other countries, which was allowed on a case-by-case basis.

After 2015, the list of destinations for U.S. crude oil exports exploded. In 2015, Canada was the destination for 92 percent of U.S. exports. By 2018, Canada’s share had fallen to 20 percent. At the same time, the amount of exported crude soared from under half a million barrels per day to more than two million barrels per day.

(Click to enlarge)

US Crude Oil Exports 2000 to 2018

The number of countries importing U.S. crude oil expanded to nearly three dozen. China briefly surpassed Canada as the top destination for U.S. crude oil exports. Last summer China imported more than half a million barrels per day of U.S. crude oil before trade war concerns prompted them to cut off their U.S. oil imports.

But the overall impact of increased U.S. WTI exports was to shrink the discount to Brent that had developed. After 2013, the discount declined for four straight years. By 2016 the discount had almost entirely vanished, which meant that WTI was again trading in line with the international benchmarks.

I believe the evolution of the WTI market can guide our expectations of the growing U.S. liquefied natural gas (LNG) export market. I will cover this topic in the next article.

By Robert Rapier

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play