As I’ve mentioned in my previous two articles on the
Brent-WTI spread (Narrowing
in the New Year? and Seaway
No Solution), US domestic crude production has grown rapidly over 2012 and
is expected to continue increasing this year. What’s more, a large amount of
this crude is ultra-light oil known as condensate. This oil is the opposite specification
of the heavy crude that the majority of US gulf refiners are set up to process
and so currently US condensate demand is low, and the increased storage needs alongside
regular WTI crude is leading to the prices of both falling relative to Brent.
While current export laws prevent oil companies exporting
condensate despite low domestic demand, Bloomberg
report that some companies are now setting up so-called mini-refineries that
will use a simple process to distill the condensate into separate fluids in
order to meet permitted export conditions for products made from raw crude.
The mini-refiners or “splitters” should be able to process
300,000 b/d each, with the first production expected to start in 2014. On top
of this this the US Commerce Department is approving more export licenses for
raw-condensate to international oil companies that process the ultra-light oil
in other counties, such as Valero’s refinery in Canada. With each permit
granted on its own merit, such a process takes time and as Keith Shaefer of the
Oil and Gas bulletin explains,
condensate production is increasing at a faster rate than new agreements and
refineries are established. Thus while these developments are good news for US
oil prices in the long term, they’re unlikely to affect the Brent-WTI spread
this year.
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