Libya exports 1.2 million barrels of oil per day. When this daily production was cut, oil prices increased about 15%. But which oil prices?
National news has been quoting the price of West Texas Intermediate Crude (WTI), which is traded on the New York Mercantile Exchange. This oil is priced at the designated storage point for the oil in Cushing, Oklahoma.
The problem is that more oil flows into Cushing, Oklahoma than flows out. There is not enough pipeline capacity to move all the oil to refineries on the Gulf Coast. This causes inventory to build in Cushing which depresses the price of the oil. Oil has to be put in trucks or on trains to get it out, which is expensive.
This situation has caused oil prices of WTI to deviate from Brent Prices. Brent Crude refers to oil produced from the North Sea. It is a grade of oil that is slightly heavier than WTI crude and is allowed slightly more sulphur content. This crude is used as a benchmark to price about two-thirds (2/3) of the world’s crude oil.
Brent Crude has usually traded at a slight discount to WTI crude because it is a slightly less desirable crude that is more difficult to refine. Because of the excess supply in Cushing, Oklahoma, Brent Crude has been trading at a premium price to WTI. The price premium has been as high as $17 per barrel. Currently it is about $9 per barrel.
Small refineries in the middle of the country have been able to get oil at the WTI price, which means the price of gasoline has been slightly less than in the middle of the country. The price of oil delivered to the East Coast refineries has recently been about $120 per barrel compared to WTI prices of about $105 per barrel. Gasoline is more expensive on the coasts.
Brent crude prices are more indicative of what the real world price of crude currently is. The price of oil you typically see is the WTI price. Be aware that the real price for oil is currently higher than what is typically quoted by the major news services.
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