Narrowing Brent-WTI spread causing concern to refiners, Alaska
Houston (Platts)--25Apr2013/514 pm EDT/2114 GMT
The narrowing of the ICE Brent-NYMEX light crude (WTI) contract spread
has become a cause for concern for refiners and states dependent on
crude oil production for revenue, according to a survey of US refiners
and trading sources.
The Brent-WTI spread is currently trading at about $10.20/b, down from a
high of more than $21/b at end-February.
The collapse of the Brent-WTI spread means US domestic crudes trading at
a premium to WTI have seen an easing of the premium, thus hurting states
dependent on oil revenue based on WTI.
The Brent-WTI spread between June and December 2014 is a relatively flat
$0.81/b, which does not augur well for refining margins, traders said.
The Alaska state government, whose budget is more than 90% dependent
on the price of North Slope crude, is concerned about the sharp
narrowing of the Brent-WTI spread in the past two months.
Towards the end of February, ANS was trading at around WTI calendar-
month average plus $18.82/b. But by April 24 it had fallen to $11.92/b,
according to Platts data. The decline in ANS' premium mirrored the
narrowing of the Brent-WTI spread.
Refiners, on the other hand, have been enjoying better refining margins
because the domestic crudes they bought, Bakken and other US domestic
crudes, have been trading at huge discounts to Brent but since
mid-February, the differentials for US domestic crudes have improved,
tracking the changes in the Brent-WTI spread.
"As the refined products market is based against Brent, while US
domestic crudes are trading at a slight discount to WTI, this means a
refiner could buy Bakken at the equivalent of Brent minus $11.50/b
ex-Clearbrook, and still enjoy a discount to Brent after taking into
account transport costs," said a US Gulf Coast refiner. "However, in
February, this same discount was at about $22.50/b."
As the discounts to US domestic crudes evaporate, industry players
wonder how long before it starts to affect refining margins because any
benefit arising from cheaper US domestic crudes is being eroded by
transport cost, as rail accounts for more than 60% of Bakken crude
moving out of North Dakota.
US REFINERIES
Several refineries in Canada and the US have been spared because of
cheaper US domestic crudes and indirectly by the wide Brent-WTI spread.
Last August, Phillips 66 reported that it would hang on to its 247,000
b/d Belle Chasse refinery in Louisiana after putting the refinery for
sale at end-2011. Phillips 66 said the availability of cheaper US crudes
as the key reason for continuing to operate the Belle Chasse refinery.
Very recently, Petrobras said it has decided to withdraw the 106,000 b/d
Pasadena refinery in Texas from its divestment plans. Improved refining
margins led by lower US domestic crude prices was said to be the major
reason. About 70% of Pasadena refinery's crude slate is made up of Eagle
Ford Shale crude. Petrobras offered the Pasadena refinery last November.
Imperial Oil, which put up its 82,000 b/d Dartmouth refinery in Nova
Scotia said Thursday it will only decide on the status of the refinery
later this year.
Industry players say Imperial Oil is trying to evaluate the market
before making up its mind. Improved refining margins in refining
domestic US crudes has led Imperial to defer its decision to the later
part of the year.
All US East Coast refiners have also been beneficiaries of improved
refining margins thanks to cheaper US domestic crudes.
"Now with the Brent-WTI spread narrowing and remaining about flat until
the end of 2014, refiners are not going to enjoy the margins they
enjoyed earlier unless US domestic crudes trade at even lower discounts
to make up for the narrowing of the Brent-WTI spread," said the refiner.
"As for Alaska, they are in a very difficult situation because ANS
production is declining and there is very little hope for it to attain a
higher premium to WTI with the narrowing Brent-WTI spread."
--Esa Ramasamy,
esa_ramasamy@platts.com
--Edited by Richard Rubin,
richard_rubin@platts.com
© 2013 Platts, The McGraw-Hill Companies Inc. All rights reserved.
To subscribe or visit go to:
http://www.platts.com
http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/27918628
|