For months, the price difference between “West Texas Intermediate” and Brent oil from the North Sea has been huge – pretty consistenly around $26 a barrel. The oil is not identical but fairly similar (unlike Venezuelan oil which is about as thick as tar).<\/p>\n
So what is the problem and is there an opportunity there? The root of the problem is Canada. Cushing became the benchmark price because it was where oil used to be produced. Oil would be shipped outward to Chicago, Canada, and Houston.<\/p>\n
The problem is now Canada is producing large amounts of oil and they have reversed a pipeline to carry oil to Cushing – but Cushing is a small place in the middle of nowhere. The tanks are full and there isn’t enough outbound capacity to send the oil anywhere.<\/p>\n
With a glut in Oklahoma, that depresses the “benchmark” price – to the point the Saudis declared they no longer will sell their oil based in US prices, but based on North Sea oil.<\/p>\n
So pretend you run a refinery in Houston and you have the choice of buying Cushing Oil from Canada @ $85 a barrel or Saudi oil at $121 a barrel (almost $1 a gallon cheaper? The answer is you can’t get there from here. Several companies want to build a new pipeline, but they are scared of the US government interfering for political reasons, and concern that some day Canada might lose interest in selling oil to Texas.
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\nEven if it is built, 2013 is the earliest it could be running.<\/p>\n
So what are your options?<\/p>\n
Truck? –\u00a0 Cushing is about half way between Tulsa (on the East) and Oklahom City.\u00a0 The nearest interstate highway is 15 miles away.\u00a0\u00a0 According to Google Maps, the trip from Cushing to Houston is about 511 miles, and takes about 9 hours.\u00a0\u00a0 Your truck is going to be returning empty.\u00a0\u00a0\u00a0\u00a0 So a driver going back and forth is maybe going to be about to do 4 trips a week.\u00a0\u00a0 The cost to ship crude by truck is a bit over $2 a mile – so each round trip for the truck costs around $2,500.\u00a0\u00a0 A truck can hold about 200 barrels of oil – so that option costs about $12 a barrel – except there aren’t 1000s of idle tanker trucks sitting around.\u00a0\u00a0\u00a0 Canada is sending about a million barrels a day, which would mean you would need 5000 trucks a day making the round trip.<\/p>\n
Barge?\u00a0 – Sorry, Cushman is nowhere near a river<\/p>\n
Train? – Sorry – the nearest rail line is 35 miles away.<\/p>\n
Tulsa has significant refining capacity and you can run trucks back and forth – but Tulsa is not on the main finished products (gasoline \/ Jet fuel) pipelines that are in Houston – so once you make it into gasoline, you still have to move it somewhere that can use it.<\/p>\n","protected":false},"excerpt":{"rendered":"
For months, the price difference between “West Texas Intermediate” and Brent oil from the North Sea has been huge – pretty consistenly around $26 a barrel. The oil is not identical but fairly similar (unlike Venezuelan oil which is about … Continue reading