The market isn’t tight everywhere, though. As evidenced by prices, there are localized gluts and producers who would gladly put more supply on the market if logistics would oblige. U.S. benchmark crude futures, priced at Cushing, Okla., are $9.00 a barrel below Brent and cash prices in the prolific Permian Basin are even cheaper. A lack of pipeline capacity is to blame.
None of that holds a candle to western Canada at the moment. Western Canada Select crude cash prices are now $46 a barrel below Brent. Pipeline and rail capacity already was stretched and, according to JBC Energy, a gas pipeline incident in the Pacific Northwest has worsened the situation significantly. Refineries in the region have had to scale back operations and thus crude purchases.
West Canada crude is trading at its widest discount to Brent Crude since at least 2013. At $57, as of Friday’s close, that is enough of an incentive to use any means available to get the oil to market. If previous spikes in the spread are any guide that is exactly what we can expect over the coming months.Click HERE to subscribe to Fuller Treacy Money Back to top