(EnergyAsia, February 27 2012, Monday) — BENTEK Energy, a Colorado, US energy information and analytics company, said the Brent-WTI crude oil price differential will range between minus US$10 to US$25 a barrel or an average of US$14 over the next five years.
For now, the average Brent-WTI spread for April 2012 to 2016 stands at roughly US$6.20.
According to its “Crude Awakening: Shale Boom Hits Oil” report, BENTEK expects WTI tumbling to a discount of nearly minus US$18 this year before rebounding in 2013 and 2014 in response to the construction of several pipeline expansions between Cushing and the US Gulf Coast including Seaway and Keystone XL.
Despite these capacity additions, BENTEK said supply growth is expected to substantially outpace pipeline and refinery increases and lead to the return of deep WTI price discounts to Brent in 2015 and 2016.
BENTEK said crude oil production from the Utica and Bakken production areas in the US in addition to increasing oil supply from Canada are expected to add significant supply to the US Midwest market and contribute to frequent periods of regional oversupply and distressed prices at Cushing relative to the Brent international benchmark.
Adam Bedard, BENTEK senior director for energy analysis, said:
“Increasing Midwest supply and downward pressure on regional prices have led to a growing incentive to move more oil from the Midwest to the Gulf Coast. As traditional flow patterns are altered and the value of crude transportation capacity is realigned, WTI-Brent and regional price differentials will feel the effect.
“The rollercoaster ride that the WTI-Brent price spread will experience over the next five years is due to transportation and refining constraints, not the quality of the crude.
“Increasing Midwest supply and downward pressure on regional prices have led to a growing incentive to move more oil from the Midwest to the Gulf Coast. As traditional flow patterns are altered and the value of crude transportation capacity is realigned, WTI-Brent and regional price differentials will feel the effect.”
BENTEK’s Market Alert expects US Midwest crude oil supply to double during the 2011-16 period, growing nearly 808,000 b/d by 2016. It predicts that crude oil production growth will include increases of 547,000 b/d in the Williston-ND, 97,000 b/d in the Anadarko and 131,000 b/d in the Utica (Appalachia-OH).
Despite these massive supply gains and six currently announced Midwest refinery expansions, crude oil demand from regional refineries is projected to grow only 3% or 108,000 b/d during this time. Consequently, regional oil prices are projected to remain deeply depressed.