WTI – Brent Relationship

WTI – Brent Relationship

It has been a long time since I last blogged.   I was busy with work and then had some Rest and Relaxation. I just didn’t get much inspiration from the various energy topics.   I was reviewing and reading the “Examining the feasibility of converting New York State’s all-purpose energy infrastructure to one using wind, water, and sunlight” but as I noted in my last blog, it was nothing substantial due to an overwhelming amount of academia and less practical experience.  Many others had already commented on the study and noted it as more of a thought piece versus a practical document.

The latest discussion I have had with people is on the WTI-Brent relationship.  I alluded in my previous blog that the spread will come in.  This was probably one of the best trades I have seen in a while, given all the factors that point to the spread coming in – Pipeline Construction, Potential weakening in Europe and Asia economy relative to the US, increase product Exports from US, and product demand growth in US.  The only negative for the spread was the on-going production boom in the US.   But the cure for prices whether low or high is usually prices itself.

Now that the spread has come in, many are now jumping on the bandwagon for WTI to be a permanent premium to Brent.   However, I believe that is not a likely paradigm, given the US has switch to a products export center – largely to the Americas.   In addition continued production from both domestic and Canada will likely make it a discount to Brent, just not as much as was observed over the past year.   This is largely based on believing the economic quandaries in Europe and Asia get settled.  If that does not work out, the future gets really foggy as US economic conditions will also falter.

I will promise to be more inspired and have more time to discuss the energy issues going forward.

Your well rested blogger Energy Consultant,

David K. Bellman