Patriotic Americans focus on West Texas Intermediate (WTI). Most of the rest of the world uses Brent from the North Sea as a reference. When the two, differing slightly in quality, cost the same, the distinction made little difference. In recent years the extraordinary flow of oil from American shale beds has led to a parting of the spigots.
A barrel of Brent currently changes hands for about $109; WTI fetches just $98. The spread first opened in 2011 as new supplies of shale oil from North Dakota and Texas supplemented the barrels already arriving at Cushing, Okla. This small town, set amid a vast expanse of storage tanks, is a pipeline hub where contracts for WTI are settled. But it turned out that there were more pipelines leading to it than away from it.
As shale oil boomed, more crude got stuck in Cushing’s ever-expanding field of storage tanks, and the WTI price sank. But the price of oil entering the big refineries on the Gulf Coast, just 500 miles away, stayed tethered to Brent. To take advantage of the discrepancy in prices — which at its peak hit $29 — barges, train cars and even trucks were pressed into service to supplement the bursting pipelines leading out of Cushing.
The construction of new pipelines and a reversal of the flow in others has gradually undone the Cushing bottleneck. The Seaway pipeline, for instance, once took oil from Freeport, Texas, to Oklahoma; since January it plies the opposite route and will soon double in capacity to 850,000 barrels a day. In July the spread between WTI and Louisiana Light Sweet (LLS), the benchmark feedstock for Gulf refiners, almost disappeared. But the clearing of the bottleneck in Cushing has released a surge of light crude to the Gulf Coast, creating a new blockage, according to Michele Della Vigna of Goldman Sachs.
Gulf refineries are using as much light, sweet American crude as they can, but most are designed to process heavier, more sulfurous grades from the Middle East and Africa. Indeed, America still imports 7.9 million barrels daily.
Refineries in California or on the East Coast could take more home-drilled oil, but infrastructure to get it to them is lacking and the Jones Act, which bans foreign vessels from domestic trade, means that ships are in short supply. Light sweet crude can be mixed with gunkier oil from Canada’s oil sands to make a more-suitable brew for Gulf refineries, but that takes time and requires regulatory approval. Selling the excess oil abroad would uncork the blockage, but American law prohibits most exports of crude. Gulf refiners are turning it into gasoline, diesel and other products, which can be exported, as fast as they can. But, says Amrita Sen of Energy Aspects, a consultancy, they are running at full capacity.