Widening Brent-WTI cost widespread doubtful to change East Coast wanton oil supply

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In Sep and Oct 2017, a disproportion between domestic and unfamiliar wanton oil prices has risen to a top turn given 2015. In a past, cost differences between West Texas Intermediate (WTI) and Brent wanton oil led to changes in wanton oil supply for petroleum refineries in a U.S. East Coast region. However, new cost changes are not approaching to impact East Coast wanton oil supply unless a opening continues and widens.

Illustration by U.S. Energy Information Administration, formed on Thomson Reuters.

Between 2011 and 2013, when domestic wanton oil prices (WTI) ranged from $3 per tub (b) to $27/b reduce than unfamiliar wanton oil (Brent) on a monthly normal basis, refineries on a U.S. East Coast altered how they were granted with wanton oil. The new cost spread, that has averaged $6/b in Sep and October, has not grown vast enough—and is not approaching to final enlarged enough—for changes identical to those seen between 2011 and 2013.

For U.S. East Coast refineries, a Brent-WTI widespread can partially establish when switching to domestic wanton oil would be some-more profitable. Before 2011, refineries on a U.S. East Coast (defined as Petroleum Administration for Defense District 1) typically processed alien wanton oil given travel options for sourcing domestically constructed wanton oil were singular and comparatively expensive.

Between 2011 and 2013, U.S. wanton oil prolongation grew faster than transportation, storage, and enlightening ability could accommodate, and restrictions on exporting domestically constructed wanton oil led to comparatively low prices for WTI compared with Brent. The vast and enlarged domestic wanton oil cost bonus from 2011 to 2013 stirred East Coast refineries to source domestic wanton oil by coastwise-compliant shipping arrangements and by investing in crude-by-rail projects, among other means.

Illustration by U.S. Energy Information Administration, Refinery Capacity Report.

These investments resulted in a vital change in East Coast wanton oil supply trends. In Jan 2014, domestic wanton oil receipts equaled profits of unfamiliar crude oil into East Coast refineries for a initial time. Domestic wanton oil profits accounted for as most as 60% of sum East Coast refinery wanton oil profits in Feb 2015.

However, a Brent-WTI widespread narrowed via a rest of 2015. In 2016, a cost disproportion between a dual wanton oils averaged reduction than $1/b. East Coast refiners responded by canceling or not renewing domestic wanton oil supply contracts, and domestic wanton oil profits during East Coast refineries decreased from a high of 535,000 barrels per day (b/d) in Feb 2015 to 101,000 b/d in Jul 2017.

illustration by U.S. Energy Information Administration, Petroleum Supply Monthly.

Other factors have altered given a 2011–2013 period. Crude oil suppliers to East Coast refineries have found other outlets for their wanton oil, such as refineries in other regions and trade markets. Expanded tube infrastructure has given domestic wanton oil producers entrance to refiners in a Midwest and Gulf Coast regions, shortening a need to boat wanton oil by rail.

In Dec 2015, restrictions on exporting domestic wanton oil were removed, so East Coast refiners contingency now contest with general buyers for domestic wanton oil, and compensate a typically aloft coastwise-compliant shipping rates for a U.S. Gulf Coast-to-U.S. East Coast tanker shipment. U.S. East Coast refiners are doubtful to repeat shifts in wanton oil supply patterns notwithstanding a widening cost difference.

Additional information about factors that impact East Coast wanton oil supply—and how those factors differ from those benefaction in 2011 by 2013—is discussed in a latest This Week in Petroleum.

Source: EIA

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