Oil Prices

The last few weeks oil prices have been moving higher and few analysts seem to understand the full story.

If there is any commodity that trades at a one world price it is oil.  So the recent weakness in West Texas Intermediate ( WTI)  is very unusual and stems from temporary bottlenecks.  Over the last few years a new major source of oil has emerged from fracking in North Dakota and other interior locations. The problem was that over the years pipelines and other supply chains for oil had been built to move crude from  coastal ports to interior locations  and refiners like Cushing, Oklahoma, not from the interior to ports. A s a consequence, when mid-western oil supplies expanded it created local surpluses and price weakness.  But now these bottlenecks are being eliminated.  In particular, two pipelines from Cushing to the Gulf Coast have been reversed and large quantities of oil are now flowing from Cushing to the Gulf ports and refiners.  As a consequence the spread between  WTI and Brent crude is  collapsing.

Since the June low, Brent crude has risen some 6.5% while WTI has jumped some 15.7%.  This has caused the spread to collapse back to near its old pre-2011 values.  Butt in evaluating the impact of the Egyptian unrest on world oil prices the number to watch is the 6.5% increase in Brent crude, not the 15.7% increase in WTI.  But the impact on domestic gas prices is more complex.  On  the coast gas prices are experiencing small price increase in line with the move in Brent while in the interior gas prices are moving up some 10% to 20% in line with the jump in WTI.