Brent-WTI price difference highest since 2015, not expected to affect East Coast crude oil supply
Unless recent cost changes continue to widen the gap between West Texas Intermediate (WTI) and foreign crude oil (Brent) prices, East Coast crude oil supply should remain unaffected, according to a recent U.S. Energy Information Administration report.
The price gap between Brent and WTI reached its highest level since 2015 in September and October of this year, with an average price spread of $6 per barrel (b). The Brent-WTI spread can partially determine when moving to domestic crude oil would be most profitable for U.S. East Coast refineries as transportation options for sourcing domestically produced crude oil were often limited and relatively expensive in past years.
EIA reports that the recent spread has not grown large enough and is not expected to last long enough to cause impactful supply shifts that hit the industry from 2011 to 2013. In that two-year period, WTI prices ranged from $3/b to $27/b lower than Brent on a monthly average basis, which caused oil refineries on the East Coast change how they dealt with their crude oil supplies, predominantly completed through the Brent foreign crude oil trade.
Between 2011 and 2013, prices for domestic crude oil dropped as U.S. production grew faster than transportation, storage, and refining capacity could accommodate and restrictions on exporting domestically produced crude oil were set in place. The prolonged decrease in U.S. crude oil prices prompted East Coast refineries to source domestic crude oil by coastwise-compliant shipping arrangements and investing in “crude-by-rail” projects. By January 2014, domestic crude oil receipts equaled that of foreign crude oil along the East Coast for the first time. In February 2015, domestic crude oil receipts accounted for 60 percent of total East Coast oil refinery crude oil receipts.
The Brent-WTI spread eventually narrowed through the rest of 2015, with the price difference averaging less than $1/b in 2016. This resulted in East Coast refiners canceling or not renewing domestic crude oil supply contracts, decreasing domestic crude oil receipts from 535,000 barrels per day (b/d) in February 2015 to 101,000 b/d in July 2017.
Additionally, restrictions on exporting domestic crude oil were lifted in December 2015, leaving East Coast refiners to compete on the international market and pay the typically higher coastwise-compliant shipping rates for a U.S. Gulf Coast-to-U.S. East Coast tanker shipment. This, among other factors that have changed since the 2011-2013 period, such as expanded pipeline infrastructure and the use of additional crude oil outlets, makes it unlikely for East Coast oil refineries to repeat the shifts in crude oil supply patterns despite the previous reaction to a widening Brent-WTI price gap, EIA said.
