A few random things at the end of the week:
–It’s almost a week old, but it took a few days for this report to pop up on the web. Vice President Joe Biden gave a hint late last week that the Keystone XL pipeline might be approved by the Obama administration. Biden is opposed to it, but he said that was not the prevailing view among his colleagues. You can read it here.
–This report from CNBC talks about whether US crude imports are now less than crude production. And the whole debate always comes down to how you want to read the data.
The monthly EIA data, considered the most accurate, comes out toward the end of the month with a 2-month lag. So the May report will carry data through March. The February report shows the crude production/imports balance to be close: production was 7.177 million b/d and crude imports were 7.27. It won’t take much for US crude production to have exceeded imports in March.
However, the weekly data shows fairly large crude imports in March. Granted, those figures aren’t considered as accurate as the later monthly summation. But weekly numbers in March ranged from 9.335 million b/d to 8.878 million b/d, so March imports will probably be above March production.
Ultimately, The Barrel has argued repeatedly that what matters is a country’s net imports of crude and products. If the US refining industry is bringing in crude that it processes and ships out as higher-value products, that doesn’t count against a country’s import dependence. And in that category, the last four months have seen US net imports go (in millions of b/d) from 6.698 to 5.987 to 7.16 (which looks like an outlier) and down to 5.992. That’s an impressive decline.
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–But those shifts may be in line for some reversal. As Platts’ Esa Ramasamy reports:
The narrowing of the front-line ICE Brent/NYMEX light crude (WTI) contract will encourage US refiners to turn to importing crudes if the differentials for domestic US crude do not fall further. As a Gulf Coast trader said: “The narrowing of the [Brent/WTI] spread means the ICE Brent futures contract is becoming cheaper relative to the NYMEX WTI contract and in essence making imported crudes more competitive to domestic production,” said a Gulf Coast crude trader.
June Brent/WTI about midday today was hovering close to $8.00/b, and it was less than $8 two days ago. At the end of February, Platts data showed it at just over $21.
The stronger WTI market means that some grades that trade against it have weakened against the benchmark crude. Bakken Blend at Clearbrook’s differential to WTI has fallen to around minus $4.70 May 8 from minus $1.00/b on February 25. Traders and refiners alike said the decline of Bakken’s differential is lagging the narrowing of the Brent/WTI spread. Light Louisiana Sweet, the reference point for importing crudes into US, has narrowed to just over $9.00/b from $21.25/b on February 25, Platts data showed. While LLS differentials have tracked the Brent/WTI spread closely, Bakken’s differential has not, and unless Bakken differentials fall further, refiners maybe more inclined to run imported crudes.
As far as why the spread is coming in: WTI is holding its ground while Brent is falling harder. The availability of competitively priced crudes available to US refinery and rising US diesel exports to Europe are placing a strain on European refiners which has led to weaker European margins and in turn having a bearish impact on Brent’s value.