Wholesale crude prices have escalated by 9% since July 1 and
primarily driven there by increased Middle East tension,
improved US economic activity and a notable increase in
demand in the US for gasoline. DOE reports this past
week indicated a dramatic decrease in US crude and gasoline
inventory levels together with a 2.5% increase in gasoline
corresponding increase in refined product wholesale pricing
has also been noted as inventory draws, increased demand and
higher input costs have impacted the retail market.
additional interesting observation has been the evaporation
of the longstanding price premium of Brent vs WTI crude
pricing. In February the price differential was in
excess of $20/bbl whereas currently the price spread is down
to less than $2.00/bbl. The explanation appears, as is
often the case, to be related to a number of issues.
Firstly, the historical glut in crude holdings at Cushing,
Oklahoma is now being dramatically reduced as a result of
the relatively recent reversal of the Seaway pipeline and
the significant increase in rail shipment of crude now
recorded as upwards to one million barrels per day.
This improvement in transportation ability has served to
reduce Cushing inventories which previously had been
discounted due to their essentially landlocked status.
At the same time, Brent pricing has been influenced by
increased supply with the return of Libyan and northern IRAQ
supply fields. The continued growth of US domestically
produced crude from places such as North Dakota's Bakken
Shale and Texas' Eagle Ford fields should continue to put
downward pressure on Brent pricing as the reliance on
foreign crude imports is reduced.
forward, the previously noted significant reduction in crude
stocks should soon translate into increased finished product
stocks which hopefully will serve as a moderating influence
on refined product wholesale and retail pricing.