Last updated: June 7, 2011 10:24 pm

Record Brent-WTI price gap reflects US oil glut

The world’s two main oil price yardsticks diverged by a record $17.39 a barrel on Tuesday, reflecting expectations of a fresh flood of crude into a US pipeline hub and strong fuel demand in China.

ICE July Brent, the European benchmark, rose $2.30 to $116.78 a barrel while Nymex July West Texas Intermediate added 8 cents at $99.09 a barrel in late New York trade.

The rival blends, reference points for global crude markets, have strayed in price since late last year as a near-record 40m barrels in crude accumulated at the landlocked WTI delivery point of Cushing, Oklahoma. Stocks there could rise further as a pipeline feeding Canadian crude to Cushing reopened after two leaks last month. Andy Lipow, of consultants Lipow Oil Associates, said TransCanada, the operator of this pipeline, “will have to operate their system at maximum capacity in order to catch up” after the halt.

Brent prices have been buoyed by the sudden loss of light, sweet crude output from Libya, the war-torn major European supplier. In China, the fastest-growing oil consuming nation, strong demand from diesel-fired electricity generators this summer will probably boost Asian crudes linked to Brent, analysts said. Refineries in the central US, many with access to Cushing, have been running at 91 per cent of capacity, the highest rate of any US region, but not enough to run down stocks at the hub. The latest weekly data on US oil supplies are due on Wednesday.

WTI sells for less than similar crudes along the Gulf of Mexico. The discount has inspired traders to move oil by rail and barge south to the coast. Enterprise Products Partners and Energy Transfer Partners are taking commitments to fill a proposed 450,000 barrel-a-day pipeline that would run crude from Cushing to Houston.

Tom Knight, vice-president at Truman Arnold, a US fuel wholesaler, said: “The spread is going to remain very wide until proposed new pipeline links are ultimately built and opened to provide an outlet for those mid-continent barrels. That’s probably 18 to 24 months away.”

The price of both benchmarks could be influenced by Wednesday’s meeting of Opec, the oil cartel. Members are expected to discuss the first increase to output quotas in four years.

The disparity between Brent and WTI has thrown traditional energy hedging strategies into disarray. Delta Air Lines this year said it had shifted most of its WTI hedging positions into Brent and heating oil.

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