Posted on 05/31/2011 5:43:29 AM PDT by thackney
This small city, which calls itself the "Pipeline Crossroads of the World," has been the center of the oil market for nearly three decades, housing millions of barrels of the light, sweet crude that make up the world's most actively traded oil contract.
But that contract, known as West Texas Intermediate, isn't what it used to be. A pipeline-building boom that has flooded Cushing's terminals has kept WTI well below other oil-price benchmarks.
The resulting price gap is clobbering airlines that use the Cushing-tied contract to lock in fuel prices, while causing some major oil producers to switch to different pricing methods. Oklahoma regulators are worried that Cushing could lose its No. 1 spot in the global oil-price pecking order, akin to the Dow Jones Industrial Average losing its place as the key barometer for the stock market.
"It's a broken marker," said Larry Goldstein, director of the Energy Policy Research Foundation, a Washington group that studies the oil industry.
West Texas Intermediate has long traded within about $1 a barrel of foreign oil priced as Brent crude. WTI settled at $100.59 a barrel Friday on the New York Mercantile Exchange, while Brent settled at $114.68 on Monday on IntercontinentalExchange Inc.'s ICE Futures Europe, a gap of $14.09. (Markets were closed in the U.S. on Monday.) In the past year, the price of Brent has soared 55%, compared with a 36% jump by WTI, propelled by global fears of supply disruptions for some of the world's biggest oil producers as well as stronger demand as the world economy recovers from the financial crisis. Gasoline, heating oil and jet-fuel prices, which historically tracked WTI, are up by more than 50%.
A lawsuit filed last week by U.S regulators has brought renewed attention to Cushing...
(Excerpt) Read more at online.wsj.com ...
If West Texas Intermediate is trading $14 lower than Brent, then refiners should buy more West Texas Intermediate. Buying more WTI will lower the demand for Brent, which will eventually lower its price.
And the problem is...?
The pipelines are full. There is a current bottleneck in the transportation chain.
Projects like the Keystone XL are trying to improve the situation but are being delayed by the Federal Government.
Exactly, well put.
In other words, it’s logistics! Buying oil futures or an oil ETF can be done on a laptop. Buying real oil cannot be done that way.
http://www.transcanada.com/5634.html
This project would help replace oil imported from overseas with domestic and Canadian Oil.
It is the only reason the price difference exists.
What to do? Election in 18 Months
Price of Oil could kill the economy worse and hurt the One's re election chances or drill for real and not say one thing and do another.
Markets are not as dumb as some American voters.
No, no, no.
The future is alternative energy. Daisies, sunlight, unicorn breath, and hummingbirds will power our aircraft and rail systems and generate power for several million people. The democrat party is merely seeking to give this industry a gentle hand up, and to do this they must try to kill any form of clean, inexpensive, abundant energy.
Foolish peasant!
Sorry, but you have the wrong end of the Unicorn. Real power is produced elsewhere.
I forgot to mention that my post should be read in Mr. Burns’ voice.
Oil is trading at $103.35 this morning before the opening...
But the problem stated in the article was:
"A pipeline-building boom that has flooded Cushing's terminals has kept WTI well below other oil-price benchmarks."
Which is exactly the opposite of what you are claiming. A bottleneck in the pipelines should limit supply and raise prices, not keep them "well below" other benchmarks.
What now needs to happen is the pipelines carrying more from Cushing to other areas with refineries, particularily refineries using imported oil. That is what I linked above.
The supply pipelines are not bottlenecked, the delivery pipelines are bottlenecked.
There are plenty of inbound pipelines -- not enough outbound. That's where the bottleneck occurs.
So then the oil is just spilling out onto Cushing's streets?
Pipelines into or out of Cushing would be a bottleneck, limit the amount of throughput, thus limit supply and raise prices.
Something doesn't jibe between "too much oil keeping prices artificially low" and "too few pipelines moving oil out" which should raise prices.
Pipelines are not delivering full capacity to Cushing but they are working at maximum capacity from Cushing.
Since more supply is available than demand is capable of handling, prices at Cushing have decreased relative to global prices.
The price in Cushing is low because their is an abundance of supply. The price outside of Cushing pipeline delivery capability is higher due to limited supply, relative to demand.
So unfortunately, when this problem is “fixed”, Cushing oil prices will move higher.
The same scenario is played out over and over all around the world. It is how investment in infrastructure happens. It is also going on now in South Texas for the Eagle Ford production.
Any additional oil on the greater market is going to push prices lower. Other factors such as curtailment by OPEC can counter that.
But if the end result is more domestic production, less foreign imports and prices stay the same, I still consider that worthwhile. More jobs at home, less dollars leaving for OPEC.
Well, the old prejudices die hard. Unicorns do not crap sunshine, rainbows and skittles. We crap gold.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.