WTI crude oil is losing internationality further

The primary index for global crude oil prices has shifted from the United States West Texas Intermediate to European Brent in the past couple of years. The reason is that WTI is losing its internationality due to the shale revolution in the north America. The tendency seems to have accelerated in this year.

WTI crude oil prices are diluting correlativity with Brent further after Keystone XL pipeline started 300,000 barrels per day of crude oil transportation from the U.S. Midwest to Texas in January this year.

Previously in the U.S., crude oil was typically imported in the Gulf of Mexico area, then transported to the Midwest, however, surge of domestic production after the shale revolution changed the situation.

Seaway pipeline reversed its transportation direction from the Midwest to the Gulf in May 2012. Its transportation quantity had increased from the original 150,000 bpd to 400,000 bpd in January 2013.

The Keystone XL pipeline which has 700,000 bpd capacity started operations in early this year, and an additional 450,000 bpd facility of Seaway pipeline is scheduled to open traffic in May. Therefore, total volume of oil transportation from the Midwest to the Gulf of Mexico will be 1.55 million bpd.

After the Keystone XL pipeline started operation, crude oil transportation between the regions seems to have exceeded the equilibrium point. Crude oil stockpile in the Midwest started decreasing sharply and that in the Gulf reached the record high level.

Since imports by tanker into the Gulf area are decreasing, the stockpile is being lifted by crude oil that comes from northern U.S. and Canada with passing through the Midwest. To buy reasonable North American crude oil and reduce tanker imports seems to be appropriate decision by Gulf refineries.

From the beginning of this year, WTI crude oil prices have been supported by decrease of stockpile in Cushing, Oklahoma despite apparent increase of the U.S. total crude oil stocks.

This situation might change if WTI's price superiority against Brent disappears. Meanwhile,  crude oil production in the U.S. is expected to increase further and imports are predicted to continue shrinking.

Status as price index of WTI may lower further, since it is more rely on stockpile in Cushing than the supply situation in the Middle East or West Africa.