East Coast refiners likely won’t increase domestic oil use as price gap widens

by Talk Business & Politics staff (staff2@talkbusiness.net) 35 views 

In 2011, when the price difference between foreign and domestic oil reached as much as $27 per barrel, refineries on the East Coast looked to domestic oil to meet demand, but the recent widening in the gap isn’t expected to change from where those refineries receive their oil, unless the gap continues to widen, according to the U.S. Energy Information Administration.

In September and October, the price gap between West Texas Intermediate (WTI) and Brent crude oil was about $6, but “has not grown large enough — and is not expected to last long enough — for changes similar to those seen between 2011 and 2013,” according to the EIA. Before 2011, East Coast refineries used imported crude oil (Brent) because of limited transportation options for domestic crude oil (WTI) and the cost to transport it. But between 2011 and 2013, crude oil production in the United States rose more quickly than “transportation, storage and refining capacity could accommodate, and restrictions on exporting domestically produced crude oil led to relatively low prices for WTI compared with Brent.”

Prices remained low for a long time, and this led East Coast refineries to increase the use of domestic crude oil via coastwise-compliant shipping arrangements and investing in crude-by-rail projects. By January 2014, the refineries were receiving an equal amount of domestic and foreign oil for the first time, and in February 2015, 60% of their oil receipts were domestic oil.

After price gap between WTI and Brent narrowed throughout 2015, East Coast refineries canceled or didn’t renew domestic oil supply contracts. By July 2017, the refineries’ use of domestic crude oil declined 81% to 101,000 barrels per day, from 535,000 barrels per day in February 2015.

Other factors likely decrease the chance of East Coast refineries from using domestic oil, including restrictions were removed on exporting domestic crude oil and domestic crude oil suppliers now have more pipeline infrastructure, increasing access to refineries in the Midwest and Gulf Coast regions and decreasing the need to ship crude via rail.

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