Louisiana crude reaches historic low against global oil price

HOUSTON — The nation’s changing pipeline network may be boosting Midwest oil prices, but recently, it has been dragging down Louisiana crude.

The gap between the price of Light Louisiana Sweet crude and Brent, the benchmark international oil price, is at a historic high, according to the U.S. Energy Information Administration. During the first eight months of 2013, Louisiana Light Sweet crude averaged $1.45 per barrel more than Brent crude. But since September, the Louisiana price has averaged $7.14 less than Brent, according to the EIA.

West Texas Intermediate oil, the benchmark price for U.S. crude, has been trading at a lower price than international crude since late 2010, as insufficient pipelines and storage facilities left a glut of oil from burgeoning shale plays in the middle of the country. But the roughly $7-dollar discount of Light Louisiana Sweet crude and international prices is a new phenomenon, a consequence of pipeline changes that now are moving the oil buildup out of Cushing, Okla., the oil transportation crossroads for North America.

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The pipelines have eased the pressure on Cushing. In the first half of 2013, its storage facilities were stretched with about 50 million barrels, according to the EIA. The number dropped to 33 million barrels by September.

As a result, the Light Louisiana Sweet crude price is moving more in tandem with WTI, and that their discounts to Brent have grown. The gap also has widened because of the growing domestic supply, inadequate pipelines to refineries on the West and East Coast and inability to export excess crude produced.

Oil experts said the return of a gap between U.S. and international prices was inevitable, because the growth in production is outpacing the domestic demand.

“Even if we have this temporary narrowing because of new pipelines coming on, the long term trend is that that gap will widen,” said Amy Myers Jaffe, executive director for Energy and Sustainability at the Institute of Transportation Studies at the University of California, Davis, told FuelFix in June. “We are going to have more and more light oil in the U.S. That will push the WTI price down relative to Brent over time.”

LLS-WTI