Bloomberg News

U.S. Crude Discount Versus Brent May End Soon: Chart of the Day

November 17, 2011

(GRAPHIC: COD_US_EUROPE_OIL_111711. CHART OF THE DAY. Size: 3C X 3.75in. (146.0 mm X 95.25 mm) Expected by 15:00.)

Nov. 17 (Bloomberg) -- Bargain prices for a benchmark grade of U.S. crude oil may soon become a thing of the past, according to John Licata, Blue Phoenix Inc.’s chief commodity strategist.

As the CHART OF THE DAY shows, the discount on West Texas Intermediate crude relative to Europe’s Brent has dwindled as much as 70 percent on futures markets since Oct. 14, when the price gap peaked at a record $27.88 a barrel.

West Texas crude, or WTI, came within $10 a barrel of Brent yesterday for the first time since March. The discount narrowed after Enbridge Inc. said it will reverse the direction of the Seaway pipeline. Seaway will transport crude to the U.S. Gulf Coast from Cushing, Oklahoma, where oil is stored for delivery under futures contracts.

The U.S. crude may be more costly by next year’s first quarter as a “slingshot effect” lifts its price, said Licata, whose New York-based firm advises hedge funds and traders. WTI rose 36 percent from Oct. 4, when futures set this year’s low on the New York Mercantile Exchange, through Wednesday.

“WTI is going to rip higher,” Licata said in a telephone interview. He cited the U.S. State Department’s delay last week of a ruling on the Keystone XL pipeline, which would send Canadian crude to the Gulf of Mexico. The pipeline’s fate won’t be decided until 2013.

Futures on WTI haven’t traded at a premium to Brent since August 2010, as the chart shows. They changed hands last year at an average discount of 63 cents a barrel to ICE Futures Europe’s Brent contracts, according to data compiled by Bloomberg. This year’s average stood at $16.53 a barrel as of Wednesday.

--Editors: Joanna Ossinger, Nick Baker

-0- Nov/17/2011 18:56 GMT

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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