From Confessions of a Macro Contrarian:
Or said differently; When Brent flies, and WTI dies.
The energy industry has the appearance that it is about to undergo a major shift in pricing structures again. We saw it lately with the spread between crude and NG blowing out. We have seen signs of it happening in Brent and WTI before, and I expect we will see new signs of it again.
To be clear, we could see extremely expensive Brent oil, as international supply fears increase with tension in Iran. This would be happening while the price of WTI, a lighter sweeter standard, crashes in US terms do to its own over supply and lack of demand issues.
This would all be happening under a backdrop of world markets bidding for refined products from a US export happy refining complex. This would lead to US gasoline prices hitting all-time highs, while refinery complexes in the US Midwest would have the highest profit margins in their history.
The US Midwest is growing its own domestic sources of oil, while its own capacity to ship the oil out is limited. This causes a bottle neck in exports in the region. This is causing the price locally to crash.
The planned refinery work in the Midwest has lowered the take-off demand for Bakken oil. This is happening inside of a window of time while the Bakken production sets all new production records every month.
This is causing the price of oil in the Midwest to crash in localized markets, as the take-off capacity does not equal the supply of new barrels. The region is buried in supply, all of which is now seeking a path to Houston refining complex.
The price difference of an equivalent grade of oil in Bakken Terminals & Louisiana terminals is now $40. This imbalance in like qualities will generate a short term arbitrage trucking bonanza, as the profit per trip approaches silly levels....MORE