BLBG:Brent-WTI Oil Gap Sliding as North Sea Output Rebounds
The difference between the world’s two most-traded grades of oil is narrowing as North Sea production rebounds from the lowest level in five years.
Brent crude on the ICE Futures Europe exchange in London cost about $18 a barrel more than West Texas Intermediate in electronic trading today on the New York Mercantile Exchange. That’s down from $21.92 on Aug. 15, the widest in almost 10 months. Daily exports of the four crude grades comprising the Dated Brent benchmark will rise 24 percent in October, the biggest monthly increase in two years, as offshore maintenance work ends, according to data compiled by Bloomberg.
“It is when we fully exit maintenance in the North Sea that the impact of additional barrels will be felt,” Harry Tchilinguirian, BNP Paribas SA’s head of commodity-markets strategy in London, said in an interview yesterday. “The market tends to look at the difference in price between these two crudes as it tends to guide arbitrage activity across the Atlantic.”
The recovery in North Sea supply is combining with a slew of refinery repairs that are sapping demand for Brent just as new rail links and pipelines are cutting a glut of WTI stored in the U.S. Midwest. Goldman Sachs Group Inc. has stuck this year to a forecast that the difference between the two grades, the most-traded spread on energy exchanges, will shrink to $5 a barrel. BNP says it may drop to between $13 and $14 after staying at $20 until the maintenance period ends.
Loading Programs
Exports of Brent, Forties, Oseberg and Ekofisk crudes, or BFOE, the four grades used to price Dated Brent, will average 890,323 barrels a day in October, according to loading programs obtained by Bloomberg. That compares with 720,000 barrels a day in September, the lowest since Bloomberg began compiling the schedules in 2007. At the same time, more than 1.1 million barrels a day of European refining capacity will be halted for maintenance in October, up from 650,000 barrels this month, according to Vienna-based JBC Energy GmbH.
Brent traded on ICE closed at a record $27.88 a barrel more than WTI on the Nymex on Oct. 14 last year. The average during the past five years is $5.30.
ICE’s Brent-WTI contract is the most popular of those offered by the exchange for any two commodities. Some 172,627 lots changed hands on Sept. 10. Trading spreads allows participants to place wagers without buying the outright futures themselves.
Seaway Pipeline
Loadings of Forties, which typically account for more than 40 percent of total BFOE exports, will rise to 329,032 barrels a day, up from 180,000 barrels a day this month, the lowest level in at least five years, programs obtained by Bloomberg showed.
That will follow the completion of scheduled maintenance at the 200,000 barrel-a-day Buzzard oil field, the biggest contributor to the Forties blend. Nexen Inc. said it halted Buzzard on Sept. 4 for repairs that were anticipated to last until the middle of October.
The logjam of oil in the U.S. is easing after Enbridge Inc. and Enterprise Products Partners LP reversed flows on the Seaway pipeline May 19, carrying supplies from the Midwest to the Gulf Coast refining hub. The link, transporting as much as 150,000 barrels a day from Cushing in Oklahoma, the delivery point for WTI, is scheduled to pump as much as 400,000 barrels a day early next year.
About 300,000 barrels a day of Bakken shale oil is being shipped from North Dakota by rail, Al Monaco, Enbridge’s president, said July 11 in Calgary. Some rail deliveries of Bakken are reaching Texas and Louisiana, according to Lee Klaskow, a Skillman, New Jersey-based analyst for Bloomberg Industries Research.
‘Latest in Surge’
Tesoro Corp. received the first unit-train of Bakken crude Sept. 4 at a new offloading terminal that will allow the company’s Anacortes refinery in Washington state to receive as much as 50,000 barrels a day by rail, Tina Barbee, a company spokeswoman in San Antonio, said by e-mail on Sept. 5.
“This is only the latest in a surge in rail unloading capacity that is likely adding more than 200,000 barrels a day of rail-unloading capacity in the third quarter of 2012,” David Greely, a New York-based analyst at Goldman Sachs, said in an e- mailed report yesterday. There will “shortly be enough rail capacity” for both loading and unloading to move all of North Dakota’s crude production, he said.
Supplies of Canadian crude that can be sent to the U.S. have been hampered by planned maintenance to upgrader units that process heavy bitumen from Alberta’s oil sands deposits into lighter crude. Suncor Energy Inc. started six weeks of repairs at the Fort McMurray upgrader complex earlier this month, while Canadian Natural Resources Ltd. is conducting work at its Alberta plant this quarter.
Four-Month High
Bakken crude prices rose to a four-month high of $103.39 a barrel yesterday, while syncrude, a synthetic oil upgraded from tar-like bitumen in Alberta into refinery-ready crude, jumped to $112.39 a barrel, the highest since July 26, 2011, according to data compiled by Bloomberg. By comparison, WTI crude for October delivery in New York settled yesterday at $97.17 and traded as low as $96.71 today.
“We expect that Bakken and Canadian crude oil will need to continue to flow to Cushing in the fourth quarter 2012, and WTI prices will need to rise back above Canadian and Bakken prices in order to motivate these flows,” Greely wrote in the report. “At current Bakken prices, this would imply that WTI prices could rise nearly $10 a barrel to $107 a barrel.”
To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
