Brent premium to WTI crude oil has narrowed from above $23 per barrel in February to around $10/bbl recently. The narrower premium despite high crude oil inventory levels at Cushing Oklahoma suggests that impact of the crude oil stocks level on prices is declining.
Brent premium to WTI had moved between minus $10 and plus $10 before 2011 in step with the increase and decrease of Cushing crude oil inventory.
The correlation coefficient between the Brent premium and the Cushing inventory since 2007 is 0.69, a strong correlation. However, the coefficient after March 2012 becomes -0.27, a slight inverse correlation.
Recent Cushing inventory level reaches to 80% of the regional crude oil storage capacity. Slight change of inventory level seems not to influence on prices significantly under the saturation situation of crude oil stocks.
Reversal of Seaway pipeline is an another factor of the lower correlation between Brent premium and Cushing inventory.
The pipeline has started reversal of crude oil transportation from US Midwest to Mexican Gulf in May last year. About 150,000 barrel per day in the beginning and expanded to 400,000 bpd in January this year, then it is scheduled to add another 450,000 bpd in 1Q 2014. The transport capacity will be 850,000 bpd in total.
The pipeline, however, seems not carrying large volume of crude oil into the Mexican Gulf area now, since the Cushing inventory stays at high level.
Even though the pipeline is not operated under full capacity at moment, it is able to reduce Midwest crude oil stocks immediately if conditions apply. Therefore, crude oil stocks in the US Midwest and Mexican Gulf should be regarded as one unit. Brent premium is not decided only by the Cushing inventory.