Exports keep WTI Houston aligned with global prices

Secondary benchmark West Texas Intermediate (WTI) at Houston, Texas, continued to be more reflective of global oil prices in 2019 than the Nymex Light Sweet futures contract in Cushing, Oklahoma, as US crude exports grew.

Argus-assessed WTI prices at Houston have an inherent tendency to reflect physical oil market fundamentals, as these will affect other global light sweet crude prices against which US exports have to compete. As US exports keep rising, it is imperative that WTI prices remain competitive enough to capture higher market share outside of the Americas.

US crude exports were at almost 3.1mn b/d in September, according to the latest monthly data from the Energy Information Administration (EIA) and hit a new record high of 3.38mn b/d in October, according to fresh data from the US Census Bureau.

That compares to exports at just under 2.4mn b/d in December 2018, after starting out the year at a little less than 1.4mn b/d, according to the EIA.

But the US benchmark does not face the same pressures as physical WTI prices at the US Gulf coast because grades that price against it can remain competitive through their differentials to the Ice Brent benchmark.

The Nymex Light Sweet contract at Cushing trended from as much as a $9/bl discount to Ice Brent early in the year to around a $5/bl discount in December, while the WTI Houston price — thanks in large part to exports — was much steadier throughout the year against the global benchmark.

Despite some daily volatility in 2019 that saw WTI Houston prices move against Ice Brent mostly within a $3/bl range — between discounts of $1/bl and $4/bl — the trend for the year as a whole had just a 25¢/bl band from around $2.40/bl early in the year to just under $2.15/bl in December. On average, WTI Houston prices for 2019 were around $2.30/bl below Ice Brent.

This marks the second year that WTI Houston prices have shown a high correlation with Ice Brent. In 2018 WTI Houston averaged just over a $2.35/bl discount to Ice Brent and traded in a similar $3/bl range to the one seen this year.

By Gustavo Vasquez