Wednesday, November 16, 2011

Oil prices

So the spread between WTI and Brent oil is "drying up" fast, the reason is simple Enbridge is buying a pipeline from Conoco and will reverse the flow. Long story short Conoco kept the pipeline in its current direction because low prices at Cushing help support Conoco's crack spread  (difference in price between raw oil and finished product).

Conoco looks like the bad guy (a little actually) but the reality is that for years crack spreads have been too thin (actually making it hard to implement changes to refineries).  Still it means that the peak difference of $24 per bbl is gone for some time.  That's why WTI prices are up.  At the end it will not impact oil prices that much since a good chuck of the increase in WTI prices will result in lower crack spreads (elasticity there is unclear...).

Now you know!


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