Tale of Two Prices For World's Crude
Many companies that refine and market oil in the heart of the U.S. look set to have a bumper third quarter, as their costs have fallen through the floor compared with the price of the fuel they sell. BP PLC, ConocoPhillips and ExxonMobil Corp. have reported percentage gains in their U.S. refining and marketing profits that dwarf any other segment of their business.
Global oil prices represented by Brent, have risen by around a third over the last 12 months due to supply disruptions in several countries, notably Libya. Other oil-product prices usually track Brent closely. U.S. gasoline has done so, rising by almost a quarter over the same period. WTI, on the other hand, has gone from trading at a premium of 63 cents a barrel to Brent a year ago, to a record discount of almost $30 earlier this month. This means the relative materials cost of refiners who use WTI and other related crudes has plummeted, even as the price of their main product has risen. The advantage more than trebled BP's profit from refining and marketing in the U.S. to $761 million in the third quarter. ExxonMobil beat them both, to report a near-fivefold increase in its U.S. downstream profit to $810 million.
The gap between Brent and WTI has fallen below $20 a barrel recently, but many analysts say these good times look likely to continue for several years.
I was hoping this cheap WTI would work it's way into cheaper gasoline prices in the US. Instead gasoline prices are tracking Brent, and the spread is going to the pockets of the refiners and majors as windfall profit. Totally sucks. Ah well, I should at least see some of that profit in my oil stocks.
The oil barrel is half-full.