North American Inland Crude Pricing Relationships Not Simple or Linear - EAI, Inc.

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Insights into Brent, WTI Cushing, and Bakken Pricing

The relationship between Brent crude pricing laid into the Gulf Coast market (as a benchmark), LLS at St. James and inland crude hubs such as Cushing, Clearbrook, and Edmonton is undergoing fundamental changes that will continue to make crude marketing, supply planning, and trading very dynamic especially over the next four years. On a global scale, Western Hemisphere crude supply growth coupled with U.S.-Canada gasoline consumption declines, a slowing Asia Pacific market, and continued refinery rationalization in the Atlantic Basin will continue to have a significant impact on the light and heavy sweet crude market length that will spill over into the light sour and medium sour grade pools. Some of these impacts are already being observed with Brent currently priced at $2.00 under LLS at St. James.

Crude pricing at North American inland hubs is undergoing major shifts as transportation capabilities and market access changes occur and production basin crude clearing prices shift accordingly. Bakken crude clearing prices have increased relative to WTI at Cushing in response to growing transportation capabilities and movements to Gulf Coast, East Coast, and West Coast markets. Bakken crude at the Clearbrook distribution hub has been periodically trading at a premium to WTI Cushing during the 4th-quarter 2012. Denver-based energy specialists EAI, Inc. (Energy Analysts International) expect Bakken crude prices to increasingly be set by the Northeast light crude market netback to Clearbrook and key Bakken distribution hubs like Alexander, ND.

Approximately 350 MBPD of Bakken crude currently moves to markets outside of the U.S. Central Corridor (PADD II) with much of this supply being transported to the U.S. Gulf Coast crude market at St. James, Memphis, and more recently the Houston market. Although most of the Bakken crude supply bypasses the Cushing market, it continues to impact the Gulf Coast market outlet for Cushing crude along with growing supply from Eagle Ford, Permian Basin, and offshore Gulf of Mexico production areas. This will result in the Gulf Coast light-medium crude market being saturated by the 2015 to 2017 timeframe. Increasing quantities of domestic light sweet crude being substituted for medium sour and heavy crude grades will result in another level of discounting that will help cover rail economics to alternative coastal markets for inland light crudes.

As detailed in its latest “North American Shale Fairway Crude Supply, Logistics, Refining and Pricing Outlook” study, EAI, Inc. has defined several distinct pricing phases for Bakken-WTI Cushing and Brent/LLS Gulf Coast pricing relationships including 1) the current Cushing to Gulf Coast transportation access limitation which will extend through much of 2013, 2) an open pipeline phase where WTI Cushing-Brent Gulf Coast differentials attain the most narrow levels and, 3) a Gulf Coast market saturation phase which will persist post 2015. This latter period will result in a re-widening of WTI Cushing-Brent Gulf Coast crude spreads to levels less than what we have witnessed over the last 20 months but representing a significant discount that will continue to drive rail movements to the coasts and advantageous inland refinery margins.

Saturation of light and medium grade crudes in the Gulf Coast refining market will contribute to the Cushing crude length along with increasing Permian Basin crude supply beyond pipeline capacity to the Gulf Coast, increasing local crude production from plays such as the Mississippi Lime formation, and surplus light crude from the Rocky Mountains including the Denver-Julesburg, Niobrara and Powder River Basins. Ramp-up of heavy crude use in the Midwest by 2014 will also result in displacement of southern sourced light crude adding to effective supply length for Cushing.

About EAI, Inc. (Energy Analysts International)

EAI Inc. (Energy Analysts International) is an energy consulting firm offering leading edge industry studies, products and services is headquartered in Westminster, Colorado. EAI, Inc. has worked with a wide range of companies including international energy firms, independent refiners, resource development firms, investment institutions, marketing companies and retailers, transportation companies and government agencies for over thirty years offering industry expertise across a variety of business areas and segments at the global, regional, asset and resource level of detail. EAI, Inc. consultants are at the forefront of the industry and always monitoring and assessing current issues and trends that have implications for its clients and the immediate business environment. EAI, Inc.’s diligence and methodical approach to energy provides a unique forum for planning, strategy development, business optimization and investment opportunities.

To learn more about this study and other informational products, please contact EAI, Inc. at +1.303.469.5115, or visit

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Joseph Leto
EAI, Inc.
(303) 469-5115
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