From OilPrice:
The world’s two most important oil benchmarks are on two different tracks, and may see a larger divergence in the months ahead.This is a strange loop rather than a doom loop but I like it so you get it:
WTI has typically traded at a discount to Brent, although the differential widens and narrows depending on specific dynamics affecting the two benchmarks. Back in 2012, when the shale bonanza really began to explode, the midstream sector was ill-prepared for such a dramatic ramp up. The result was a bottleneck that forced WTI to trade at a discount in excess of $20 per barrel for a short period of time. New pipelines resolved the backlog and the discount narrowed in the ensuing years.
In 2018, however, surging production in the Permian has resulted in yet another midstream
bottleneck. As a result, the WTI discount has bounced around between $3 and $8 per barrel relative to Brent. In September, the differential jumped to $9.
In fact, the two benchmarks may very well continue to diverge in the months ahead as they experience different market pressures.
U.S. shale output continues to grow, albeit at a slower pace than in months past. Permian takeaway capacity is all but tapped out, which could result in localized glut of supply. Oil located in Midland, Texas in the heart of the Permian has already been trading at a double-digit discount to WTI in Houston, and that dynamic will only magnify as we head into 2019.
Meanwhile, Brent, which more closely reflects the international market, is suffering from the opposite problem. As Iranian supply continues to plunge – Iranian oil exports are down some 1 million barrels per day from the April peak – the global oil market has tightened to its greatest extent since 2014. Now, there are questions about Saudi Arabia’s spare capacity and its ability to offset the outages in Iran.
The result is that WTI and Brent are on diverging paths, which could widen the differential to as much as $15 per barrel, according to Citigroup, roughly twice as high as today. As Permian production continues to grind higher, more oil could end up in storage in Cushing. As inventories climb, WTI will suffer downward pressure.....MORE
A quick definition from Wolfram Math World:
A strange loop is a phenomenon in which, whenever movement is made upwards or downwards through the levels of some hierarchical system, the system unexpectedly arrives back where it started. Hofstadter (1989) uses the strange loop as a paradigm in which to interpret paradoxes in logic (such as Grelling's paradox, the liar's paradox, and Russell's paradox) and calls a system in which a strange loop appears a tangled hierarchy....Don't even get me started on a self referential vortex of doom.
