US-Produced Oil Is Getting So Cheap, The Government Is Now No Longer Using Local Prices As Its Benchmark

Dec. 6 (Bloomberg) — Even the U.S. Energy Department no longer deems America’s benchmark oil grade as the best guide to global prices, as rising production swells national stockpiles.

The Energy Information Administration in Washington dispensed with West Texas Intermediate for its price forecasts in its Annual Energy Outlook 2013 released yesterday, adopting North Sea Brent crude instead. It’s the first time the department has used Brent, reflecting “a growing discrepancy between West Texas Intermediate prices and global crude prices,” it said.

WTI has fallen 11 per cent this year as the U.S produces oil at the fastest rate in almost two decades amid a boom in horizontal drilling and hydraulic fracturing, or fracking, that’s putting the country on course to become self-sufficient in energy. Brent, a benchmark grade for prices from Saudi Arabia to Russia, has risen 1.4 per cent, underscoring growing demand in Asia and concern about supply disruptions from the North Sea to Libya and international sanctions on Iranian exports.

“This makes perfect sense as Brent is a better reflection of global oil demand and supply than WTI,” Gordon Kwan, the head of regional energy research for Mirae Assets Securities Ltd. in Hong Kong, said in a phone interview. “WTI has become a misleading price indictor for global economic growth and will become increasingly less relevant versus Brent oil.”

Prices have diverged as U.S. companies have struggled to move oil from North Dakota and Canada refineries on the east and Gulf coasts. WTI traded on the New York Mercantile Exchange was $21 cheaper than Brent on the London-based ICE Futures Europe Exchange at 8:38 a.m. in London today. It was an average $1.01 cents more expensive in the 10 years through 2010.

“This is the first time the AEO is using Brent as the main driver in the reference case,” said Adam Sieminski, administrator of the EIA, a unit of the U.S. Energy Department. “With a growing discrepancy between West Texas Intermediate prices and global crude prices, it was important for EIA to use a global marker.”

–Editors: Justin Carrigan, Stephen Voss


To contact the reporters on this story: Ramsey Al-Rikabi in Singapore at [email protected]; Christian Schmollinger at [email protected]


To contact the editor responsible for this story: Alexander Kwiatkowski at [email protected]