“Oil prices rose yesterday.”
That sound bite is usually enough for those with a casual interest in the direction of the world’s most important commodity, whether it is because they own a few hundred shares of Exxon Mobil or want to know how much next weekend’s road trip will cost. For those in the energy market, though, it isn’t so simple—especially now.
Crude oil not only comes in myriad varieties with varying physical properties—light or heavy, sweet or sour—but it also is pumped, or in the case of heavy crude, mined, all over the world. That means different prices. Right now those differences are bigger than usual and in some cases counterintuitive. The culprits include surging U.S. shale output, fewer barrels from the Middle East and transport bottlenecks in North America.
The discount of Northwestern European Brent over West Texas Intermediate, priced at Cushing, Okla., was $9.29 a barrel Thursday morning. It was even higher before the U.S. lifted its export ban. Before U.S. oil output began surging, though, slightly higher-quality WTI usually fetched a premium.
But many U.S. producers would love to get even today’s depressed WTI price. Oil delivered at the Midland Hub in the booming Permian Basin is now about $10 a barrel lower or nearly $20 below Brent. Analysts at Raymond James see that continuing until late 2019 when more pipelines relieve the glut.
Canadian producers of heavy crude have it even worse with Western Canada Select spot prices at a discount of over $22 to Brent. Their transport bottlenecks may last even longer. The Canadian government was forced to buy a pipeline from U.S. company Kinder Morgan to expedite an expansion project.
Finally, a key oil variety from Russia, the world’s No. 1 producer, hit its highest discount to Brent in six years, according to S&P Global Platts, as buyers saw a surfeit of similar grades.
Investors in companies from EOG Resources to Suncor to Lukoil are collectively leaving billions of dollars on the table.
“Oil prices” may be near a multiyear high, but some oilmen are happier than others.