[GoghGoner]

Cushing is been making the rounds in the media lately. I looked at Cushing data once to try and model prices with it but ended up throwing that out.

Cushing's oil market clout wanes amid U.S. export boom

That could pave the way for a change in the U.S. benchmark oil price, used to value tens of billions of dollars of crude and futures contracts every day. The current benchmark - called West Texas Intermediate crude, or “WTI” - has been derived from the price of physical oil delivered to Cushing for more than three decades.

[ROCKMAN]

Clout of WTI at Cushing??? Folks need to remember that very little oil refined in the US comes originally from WTI. First consider our still huge import volume. About 88% of our imports are heavier then WTI’s 39 API. In fact, almost 60% is heavier than 25 API with WTI and lighter oils accounting for just 11% of our imports.

https://www.eia.gov/dnav/pet/pet_move_ipct_k_a.htm

And domestic production? A bit more then half of US oil production is a lighter gravity then WTI. In fact, only about 18% is in the range of 35 API to 40 API where WTI would fall. Almost 30% of domestic oil production is heavier then WTI. In fact, the US produces about as much heavy oil as it does WTI.

https://www.eia.gov/todayinenergy/detail.php?id=30852

Remember that a “benchmark oil price” isn’t what oil is selling for. The WTI “price” is just one benchmark that the first sales price would be calculated upon. Depending on the API, sulfur et al content and location the price might be WTI - $15. Or WTI + $4/bbl. As mentioned many times the first sales price of Rockman’s Texas oil production doesn’t use the WTI benchmark. It uses the LLS benchmark…Light Louisiana Sweet. Because even having a transport discount it still pays more to barge it to Lake Charles, La. There are a variety of other oil benchmark prices in the world beside WTI and Brent.

In the real world (compared to the futures market world) very little WTI is produced or imported in to the US. Which also means very little WTI is shipped and stored at Cushing. It also doesn’t change the fact that whatever oil is stored at Cushing it represents only about 16% of the total amount of oil stored in the US. And the vast majority of that stored oil did not sell for whatever the WTI price was posted on the futures exchange that day. OTOH a 100% of the billion+ “paper bbls” that are occasionally traded in the futures market are all “WTI oil”. And none of those imaginary bbls are stored at Cushing. LOL.

Folks can do what they want but if they continue to confuse real oil with paper futures bbl they’ll have a problem seeing the big picture. Not only are very few bbls of WTI produced or imported into the US very little oil is bought at whatever the futures exchange is posting for the price of WTI. It’s not even a good trend stat to follow: actual sale price trends have significantly changed over the years as very cheap dilbit imports from Alberta increased and light oil condensate production boomed from the shales. Just one more reason models that try to predict the future price of oil using the WTI benchmark and the effects on the economy are lame IMHO.

And one more factor: refineries don’t buy any 39 API WTI. They buy 32 API blended oil. And the price they pay (which is eventually passed on to the consumers) is not related to the WTI bids posted on the futures exchange that change minute by minute. And can change significantly in the 24-hour new cycle. Such as when the US launches missiles at a ME country.

[Cog]

WTI oil went over $70/bbl yesterday. First time since 2014.

Current price: $70.48/bbl

[ROCKMAN]

"WTI oil went over $70/bbl yesterday." Same minor qualification: The bid price for 30 day WTI future contracts went over $70/bbl yesterday. Whether those contracts make or lose money depends on what WTI future contracts are selling for in 4 weeks. This week some physical oil sales may be over $70/bbl but the vast majority of contracted oil is selling for less. In fact, some selling for significantly less. Heavy oil, which represent a significant % of global production, sells at a differential to light, sweet oil like WTI. And while the price of actual physical has been increasing heavy oils have not been going up by the same amount. For instance, not too long ago when WTI increased by $1/bbl Brent only increased by $0.60/bbl.

And let’s not forget US refineries do not process WTI or any other light oil. They refine blended oils made by mixing more those light oils with much less expensive heavy oils. Heavy oil prices that do not increase in lock step with light oils like WTI.

[vtsnowedin]

Rockman just because we reference today's WTI price does not mean that we don't understand the complexities of the oil market or the futures market. The WTI price is the benchmark that is quoted hourly nothing more. You don't need to go into a oil business 101 class lecture whenever somebody just discusses today's price quote.

[Outcast_Searcher]

Rockman just because we reference today's WTI price does not mean that we don't understand the complexities of the oil market or the futures market. The WTI price is the benchmark that is quoted hourly nothing more. You don't need to go into a oil business 101 class lecture whenever somebody just discusses today's price quote.

Second. I don't think anyone here doesn't know what Cog is referring to when he says "WTI oil" referring to the price yesterday.

Rockman, I respect your knowledge of oil and the oil markets. The "Oil 101" class commentary is definitely appropriate when some of our economically clueless folks just make stuff up and make claims that are clearly outrageously wrong by just looking at simple objective market facts. For common oil word / price usage that anyone with a clue is clear on the intent, not so much.

[ROCKMAN]

Guys - Terminology counts: if one wants to talk about the price of oil futures then they should say "oil futures". It's as simple as that. If they want to talk about the weighted average price of oil sold in the global market place today then they should throw that out. Of course, very few here have a clue what that price might be. Thus the dependency on the dumbed down price of future contracts. LOL.

But it seems the most pertinent part of my message was glossed over by the Oil 101 experts. That A) the majority of oil produced and purchased is not WTI and thus the price of WTI as well as WTI futures contracts is not very relevant to the current dynamic. And B) increases in the price of WTI does not necessarily match the increase in the price of the average bbl of physical oil sold today. And C) what refiners pay for the blended oil they process is not a function of the price of physical WTI oil or its future contract prices. And D) we still periodically hear from folks proclaiming that condensate/light oil is of little value despite it being critical for refining since it s key to blending with heavy oil/bitumen. Folks who would surely fail the final exam in Oil 101. LOL.

Some here may understand those FACTS. But we still see posts from folks don't. And posts from those folks can confuse the newbies.

[vtsnowedin]

What newbies?

[Outcast_Searcher]

Guys - Terminology counts: if one wants to talk about the price of oil futures then they should say "oil futures". It's as simple as that. If they want to talk about the weighted average price of oil sold in the global market place today then they should throw that out. Of course, very few here have a clue what that price might be. Thus the dependency on the dumbed down price of future contracts. LOL.

Really? So if the man on the street says something like "The price of WTI was over $70 today for the first time today", you think either the folks here or other folks on the street don't know what he's talking about?

I see many articles discussing the price of oil each month. They say things like "the price of WTI" or "the price of Brent", and lo and behold, having a general idea of the price of oil recently, I am confident I can figure out what they are talking about.

While technically correct, re common usage, with respect, I think you're being pedantic.

The only time I need to be very precise about which contract I mean is when I intend to buy or sell a futures contract.

[marmico]

Hours worked to buy 10 gallons of regular gasoline since 1991. Adjust for improvement in average fuel efficiency (25% since 1991 - 20 mpg-->25 mpg). No difference between Clinton (1993) and Trump (2017).

[marmico]

But it seems the most pertinent part of my message was glossed over by the Oil 101 experts.

Do you even know what basis (discount, premium) to a benchmark (WTI, Brent, Dubai, etc.) means? Go to town on price.

https://oilprice.com/oil-price-charts/block/8

[ROCKMAN]

"...you think...other folks on the street don't know what he's talking about?" I have no doubt the vast majority of "folks on the street" have no clue that price is referring to oil future contracts. Just as they don't understand the price they pay at the pump is a function of the price of BLENDED oil AND the refining costs AND the refinery's profit margin. l also suspect that many here don't understand that the WTI future contracts bids are much higher then the actual weighted average price of oil sold in the global market.

Want to prove me wrong? OK: tell everyone what the weighted average price of a bbl of oil sold this week really is. Marm is also invited to play along.

The discussion isn't focused on terminology but understanding (on not understanding for some) the full scope of the dynamic.

[vtsnowedin]

Do we know the actual sale price of every oil grade at every receiving terminal? Of course not, nor do we care or need to. We do know that if the price of WTI posted where we can watch it goes up or down ten dollars the price of gas will go up or down 24 cents a gallon within a few days going up and in a few weeks gong down.
You are just being an arrogant ass spouting off about how much of an expert you are.We have heard you multiple times and don't need to hear it again.

[rockdoc123]

You are just being an arrogant ass spouting off about how much of an expert you are.We have heard you multiple times and don't need to hear it again.

that's a bit over the top IMHO. I suspect Rockman has a point to make that isn't about trying to show what he knows about local oil pricing....any idiot with a keyboard can figure that out (assuming they understand the reason you might want to...which I think is his point).

Yes there are two main crudes that the financial world follows, WTI and Brent, most people who publish reviews etc refer to these prices. The point being made is there is a horde of other crude types that add significant complexity to the whole oil price and trade scenario. As an example, Louisiana light is produced in a geographic location that is pretty darned close to most of the East TX production and it has traded closer to Brent prices for quite awhile (at one point $5 more than WTI). The way that TX attracts E&P folks into their state versus their neighbors (where they would get higher prices) is to lower severance tax which results in the economics of TX versus LA E&P being pretty darned close to one another. Currently with Brent and WTI getting really close the LA gov't is probably thinking about adjusting severance levels.
Standing back at 10,000 feet it is useful to use WTI and Brent but if you are looking at issues around oil sales in Canada, as an example, you need to understand that although WTI is $70/bbl, Western Canada select is only $51/bbl (for various reasons)
It all comes down to what you are looking at and what you are arguing. Sometimes one has to look at the trees rather than just the forest.

[vtsnowedin]

Perhaps a bit over the top but other more subtle comments have been ignored.
His points are valid of course as they were the last six or seven times he posted them. It is not the content it is the needless repetition that irks me.

[Outcast_Searcher]

WTI oil went over $70/bbl yesterday. First time since 2014.

Current price: $70.48/bbl

To review, the above comment kicked off the current discussion re the need to educate people on the specifics of oil prices re blended grades, etc. (Unless I missed something).

To me, Cog's comment is an accurate reflection of the fact that a major grade of oil, often used in discussions about the relative price of oil, just hit a price not seen in about four years.

And that comment accurately reflects the general state of the overall oil market (re things like relative gasoline prices) in context, vs. the past several years.

...

So again, I understand the need to lecture pstarr and his ilk for claims that oil has been unaffordable since it plunged in 2014. But I don't understand, in context, why ANYTHING is wrong with the above comment by Cog, or similar comments in the MSM about oil prices if they refer to the WTI or the Brent price in context with some time period.

Why? Because the context isn't about some detailed issue with buying some special grade of oil at location X -- but the overall price of oil and its (implied economic) consequences.

...

(If that makes me stupid, I'll be happy to wear my dunce cap once someone convinces me WHY that's stupid).

[ROCKMAN]

Outcast - You're certainly not stupid. You just don't sell oil for a living. LOL.

“Cog's comment is an accurate reflection of the fact that a major grade of oil…just hit a price not seen in about four years.” Incorrect. WTI is a minor component of global oil production representing only 30%. But even that number is not correct because it includes all “Light Oil” production and not just WTI. In fact, at 69% medium and heavy oils represent more then twice as much all the light oils combined...not just WTI. In reality very little US and global oil production ca be classified as WTI. See Page 44:

https://www.eni.com/docs/it_IT/eni-com/ ... R-2017.pdf

In the US, during 2016, the majority (51%) of the 8.4 million barrels per day (b/d) of crude oil produced in the Lower 48 states was light oil with an API gravity of 40.1 or above. While close WTI, by definition, is 39.6 API. All oil, including WTI, in the 35 API to 40 API represented only 19% of total US oil production.

https://www.eia.gov/todayinenergy/detail.php?id=30852

But even more important the weighted average of oil BOUGHT and processed by US refineries was significantly heavier then WTI: less then 32 API. The price refineries pay for oil is little impacted by the price of WTI contracts bids or even the price of physical WTI oil sales:

https://www.eia.gov/dnav/pet/hist/LeafH ... rapus2&f=a

And though I was just chastised for stating the “obvious” here it is again: “…just hit a price not seen in about four years.” So again was that the price WTI was sold by US producers this week or the recent closing price of 30-day WTI futures contracts? A price that might significantly increase or decrease in a matter of a few days. A price that has ZERO EFFECT on the price that the Rockman received for his oil this week. IOW those bids are not effecting what consumers are paying for refinery products. Refinery products made from blended oil. Blended oil which contains very little WTI. Blended oils containing a significant volume of heavier oils whose prices do not move in lock step to changes in the price of physical WTI oil sales. And have no relationship to WTI CONTRACTS currently being written.

Why this redundant post? "Because the context isn't about some detailed issue with buying some special grade of oil at location X -- but the overall price of oil and its (implied economic) consequences.” Within the “context” of that post the recent closing bids on those contracts: “…the overall price of and its (implied economic) consequences.” Those bids have no consequences because they represent the prices of “paper bbls” and little if any physical bbls of oil being sold today. So I’ll ask one more time: who can tell us what the average weighted oil price oil being currently sold in the US? In the world? Those are the numbers that will EVENTUALLY impact economies.

[Outcast_Searcher]

Outcast - You're certainly not stupid. You just don't sell oil for a living. LOL.

“Cog's comment is an accurate reflection of the fact that a major grade of oil…just hit a price not seen in about four years.” Incorrect. WTI is a minor component of global oil production representing only 30%.

I didn't say "the major", I said a major. To me, the top ones are the major ones. As I know has been mentioned in this thread, WTI and Brent are both major futures contracts that are frequently cited in conjunction with discussing the relative price of oil.

And though I was just chastised for stating the “obvious” here it is again: “…just hit a price not seen in about four years.” So again was that the price WTI was sold by US producers this week or the recent closing price of 30-day WTI futures contracts? A price that might significantly increase or decrease in a matter of a few days. A price that has ZERO EFFECT on the price that the Rockman received for his oil this week. IOW those bids are not effecting what consumers are paying for refinery products. Refinery products made from blended oil. Blended oil which contains very little WTI. Blended oils containing a significant volume of heavier oils whose prices do not move in lock step to changes in the price of physical WTI oil sales. And have no relationship to WTI CONTRACTS currently being written.

Rockman, I respect you, but we seem to be talking past each other. It seems like we're talking about semantics issues more than fundamentals here (to me).

I think folks like Cog and I (in the context of Cog's quote I referenced) and the press DON'T REALLY KNOW OR CARE what the actual price of the oil physically bought and sold is down at the detailed level. We are using WTI (or Brent) as a PROXY for the approximate value business and speculators are paying for oil. Look, airlines (as an example) don't run around and hedge future oil needs by buying some minor grade directly from Barney's discount oil emporium. They buy major futures contracts which are liquid, anticipating that this will (for the most part) hedge their future oil needs.

Why this redundant post? "Because the context isn't about some detailed issue with buying some special grade of oil at location X -- but the overall price of oil and its (implied economic) consequences.” Within the “context” of that post the recent closing bids on those contracts: “…the overall price of and its (implied economic) consequences.” Those bids have no consequences because they represent the prices of “paper bbls” and little if any physical bbls of oil being sold today. So I’ll ask one more time: who can tell us what the average weighted oil price oil being currently sold in the US? In the world? Those are the numbers that will EVENTUALLY impact economies.

Yeah, I get it. But again, it's my belief that over time, the price of Brent and WTI (they do widely diverge at times) are a decent PROXY for the price of oil, and to reflect the markets' attitude about likely future oil prices. To me, that information has value for things like whether I should buy or sell oil stocks and the likely impact on the global economy over time, even though they're paper barrels. I believe that the value of those paper barrels will strongly correlate over time to the actual price of the blended oil that is physically sold.

Now if that's not true, then I think there's a big problem with the oil futures market, because being that proxy is what futures are designed for, whether they be gold futures, pork barrel futures, sugar futures or Brent or WTI futures.

Being an insider, you have far more insight and expertise on the details. That's great.

Dumb outsiders like me will just have to be content to limp along and use proxies like WTI and Brent, because people can't be experts at everything and their time is finite.

In my 35+ years experience in trading various markets, the proxies provided have been plenty good enough to get the job done. And they certainly have correlated with the price of the gas I put in my car over time, very closely.

I'm reminded of a comment in a book about trading futures that most of the guys (professional traders) in the soybean pit probably wouldn't know an actual soybean plant if they saw it. And yet, soybean futures do say something significant about the likely price of soy products in the grocery store.

[TrueBeliever]

I'm definitely a Newbie. I've never drilled, produced, even touched crude oil.

Still, I crawl on over to PeakOIl.com's deadish forums once in awhile to see if ROCKMAN has returned and try to catch some more words of wisdom from the old codger! Please, please repeat everything, ROCKMAN - I began following your insight over on TheOilDrum.com when the Macondo Well was a huge problem.

As for me, I hope to keep driving my Diesel pickup, my 200HP outboard equipped fishing boat, other cars, motorcycle, for the foreseeable future ... and be thankful I live in a part of the world that's only 5% of the World's population across 3.7 million plus square miles, borders two seas, and has enough Oil Sands to help us limp along while the rest of the world whimpers! (This scenario requires we assimilate Canada)

Carry on folks!

[ROCKMAN]

Believer - Have no fear: the Rockman is well known here for his irritating redundancy. LOL.