The price difference between West Texas Intermediate (WTI) crude oil and Brent is expected to remain at $6 per barrel through the first quarter of 2018 before narrowing to $4 per barrel in the second half of 2018, according to the U.S. Energy Information Administration. The price for West Texas Intermediate crude oil is set in Cushing, Okla., and Brent is the global crude oil price benchmark.
In the first eight months of 2017, WTI crude oil was about $2 per barrel less than Brent, but in September and October, it was about $6 per barrel less than Brent. The forecasted price gap is about $1 wider than projected a month ago and reflects changes in price likely resulting from transportation constraints in moving U.S. crude oil from Cushing and from the Permian basin in Texas to the Gulf Coast, according to the EIA. “Near-term changes in the Brent-WTI price spread will generally be derived from either changes in pipeline capacity or U.S. crude oil production.”
The need for transportation infrastructure has risen as crude oil production has increased, especially in regions such as the Permian basin; however, the timing of when additional pipeline capacity comes online and the rate at which production rises is not always aligned. “Without pipeline constraints, moving crude oil from Cushing to the U.S. Gulf Coast typically costs $3.50 (per barrel), but it has become more expensive as transportation constraints have developed,” according to the EIA. The constraints have led to high levels crude oil inventories in Cushing. Between the last week of July and the week ending Nov. 3, inventories there have risen by 8.8 million barrels, while total commercial U.S. crude oil inventories have fallen by 25 million barrels. Cushing inventories have risen to 51% higher than the five-year average, but total U.S. inventories and Gulf Coast inventories are 15% and 10%, respectively, higher than their five-year averages.