By Keith Kohl
Monday, September 27th, 2010Get ready to mark the date on your peak oil calendars.It's been a long time coming, but Brent crude may finally top the light sweet crude from Texas — known as Western Texas Intermediate — as the global oil benchmark.Typically, WTI crude from Cushing, Oklahoma, holds a higher price than Brent crude.The difference is in the quality: the less sulfur, the easier it is to refine the crude into gasoline.WTI is both lighter and sweeter, containing about 0.24% sulfur. Brent crude has about 0.37% sulfur and is still classified as a sweet crude.
Now compare that with the world's heavier deposits of oil...
Heavy crude oil produced from Venezuela's Orinoco Belt contains approximately 4.5% sulfur.Even the mighty OPEC — which produces about 40% of the world's oil supply — doesn't have the same quality.So you can see why WTI is highly sought after.Recently, however, there have been concerns that WTI should no longer be considered the best reflection for global oil demand.For starters, there were Enbridge's recent pipeline troubles...The company was forced to shut down one of its pipelines after a leak was discovered. The pipeline was part of the Lakehead System, which transports up to 670,000 barrels of oil to Midwest refineries, as well as the Cushing hub.(That's one of the reasons we've seen oil prices spike to $78 per barrel recently.)The company expects to restart the pipeline today.WTI is currently trading at a $2.15/bbl discount to Brent crude. Last May, the spread between the two was more than $5 per barrel.The concern is that WTI is losing its connection to global markets, particularly the supply-demand issue. The WTI discount comes at a time of near-record inventory levels.I'll let you connect the dots for yourself...Losing its global reputationLast month, Reuters reported Asia is trying to ditch its regional oil benchmarks for Brent crude, stating that Brent is a closer match to the region's light, sweet crude than WTI.Even OPEC has shown concern that WTI may be an inaccurate benchmark.You might remember about a year ago, when we talked about Saudi Aramco's decision to ditch WTI for the Argus Sour Crude Index...According to the Saudis, the Argus was a better reference for the heavier, more sour crude which the country exports.The low-hanging fruit is goneThe idea of WTI losing its status as a global benchmark is downright scary.For decades, WTI has been sought after for its light, sweet qualities. The fact that the world's exporters have lost faith in the Texas-grade crude shows us how far global production has come.Think about it...How many times have you heard us say that the cheap, easy-to-get oil is a thing of the past?Even the light, sweet crude in the U.S. is losing its quality.You know there's a veritable oil boom happening right now in North Dakota. The Bakken oilhas a gravity between 38-40, and sulfur ranging from 0.2% to 0.5%. Unfortunately, producing this North Dakota oil isn't as easy as drilling a vertical well; horizontal drilling technology is now used, and wells can cost millions of dollars.The reality is that oil is becoming harder to get.At current consumption levels, the world is using more than 31 billion barrels of oil each year. With the world's oil supply becoming more expensive to extract, it makes me wonder how long it will be until Brent is considered an “inaccurate reference” for world oil supplies.North Sea productionBrent crude comes from the North Sea.That in and of itself is cause for concern.Oil production in the North Sea peaked during the 1990s. Producing oil in the rough Atlantic waters is much more difficult compared to a conventional field. It isn't the most optimal place to hold the bulk of UK's oil reserves.You can see how production has declined — even despite oil's historic run-up to $150 per barrel in 2008.It didn't matter how high the price of oil climbed; nothing could turn around oil production in the UK:
Oil production will only get worse from here on out for the United Kingdom...So far, the biggest North Sea oil discovery within the last three decades has been the Buzzard field.Located in the Central North Sea, the Buzzard field was discovered in 2001 and produces more than 200,000 barrels of oil per day.Now factor in the cost of developing Brent crude...An Oil and Gas UK survey released earlier this year suggested 17 new fields in the UK Continental Shelf are 20% more expensive to develop — not to mention 25 billion pounds (or approximately US $36.6 billion) must be spent by 2016 in order to put the infrastructure in place.It's enough to make the last deposits of light, sweet easy-to-extract crude even more valuable for producers — and that's assuming you know where to look.When investors do find those plays, however, the payoff can even more lucrative.My office cell-mate Christian DeHaemer hit a bull's eye on one such opportunity. His latest video outlines the details of a massive oil discovery.Not only are his readers banking over 900% from one small oil driller in the play... there are even more gains on the horizon.Until next time,
Get ready to mark the date on your peak oil calendars.
It's been a long time coming, but Brent crude may finally top the light sweet crude from Texas — known as Western Texas Intermediate — as the global oil benchmark.
Typically, WTI crude from Cushing, Oklahoma, holds a higher price than Brent crude.
The difference is in the quality: the less sulfur, the easier it is to refine the crude into gasoline.
WTI is both lighter and sweeter, containing about 0.24% sulfur. Brent crude has about 0.37% sulfur and is still classified as a sweet crude.
Now compare that with the world's heavier deposits of oil...
Now compare that with the world's heavier deposits of oil...
Heavy crude oil produced from Venezuela's Orinoco Belt contains approximately 4.5% sulfur.
Even the mighty OPEC — which produces about 40% of the world's oil supply — doesn't have the same quality.
So you can see why WTI is highly sought after.
Recently, however, there have been concerns that WTI should no longer be considered the best reflection for global oil demand.
For starters, there were Enbridge's recent pipeline troubles...
The company was forced to shut down one of its pipelines after a leak was discovered. The pipeline was part of the Lakehead System, which transports up to 670,000 barrels of oil to Midwest refineries, as well as the Cushing hub.
(That's one of the reasons we've seen oil prices spike to $78 per barrel recently.)
The company expects to restart the pipeline today.
WTI is currently trading at a $2.15/bbl discount to Brent crude. Last May, the spread between the two was more than $5 per barrel.
The concern is that WTI is losing its connection to global markets, particularly the supply-demand issue. The WTI discount comes at a time of near-record inventory levels.
I'll let you connect the dots for yourself...
Losing its global reputation
Last month, Reuters reported Asia is trying to ditch its regional oil benchmarks for Brent crude, stating that Brent is a closer match to the region's light, sweet crude than WTI.
Even OPEC has shown concern that WTI may be an inaccurate benchmark.
You might remember about a year ago, when we talked about Saudi Aramco's decision to ditch WTI for the Argus Sour Crude Index...
According to the Saudis, the Argus was a better reference for the heavier, more sour crude which the country exports.
The low-hanging fruit is gone
The idea of WTI losing its status as a global benchmark is downright scary.
For decades, WTI has been sought after for its light, sweet qualities. The fact that the world's exporters have lost faith in the Texas-grade crude shows us how far global production has come.
Think about it...
How many times have you heard us say that the cheap, easy-to-get oil is a thing of the past?
Even the light, sweet crude in the U.S. is losing its quality.
You know there's a veritable oil boom happening right now in North Dakota. The Bakken oilhas a gravity between 38-40, and sulfur ranging from 0.2% to 0.5%.
Unfortunately, producing this North Dakota oil isn't as easy as drilling a vertical well; horizontal drilling technology is now used, and wells can cost millions of dollars.
The reality is that oil is becoming harder to get.
At current consumption levels, the world is using more than 31 billion barrels of oil each year. With the world's oil supply becoming more expensive to extract, it makes me wonder how long it will be until Brent is considered an “inaccurate reference” for world oil supplies.
North Sea production
Brent crude comes from the North Sea.
That in and of itself is cause for concern.
Oil production in the North Sea peaked during the 1990s. Producing oil in the rough Atlantic waters is much more difficult compared to a conventional field. It isn't the most optimal place to hold the bulk of UK's oil reserves.
You can see how production has declined — even despite oil's historic run-up to $150 per barrel in 2008.
It didn't matter how high the price of oil climbed; nothing could turn around oil production in the UK:
Oil production will only get worse from here on out for the United Kingdom...
So far, the biggest North Sea oil discovery within the last three decades has been the Buzzard field.
Located in the Central North Sea, the Buzzard field was discovered in 2001 and produces more than 200,000 barrels of oil per day.
Now factor in the cost of developing Brent crude...
An Oil and Gas UK survey released earlier this year suggested 17 new fields in the UK Continental Shelf are 20% more expensive to develop — not to mention 25 billion pounds (or approximately US $36.6 billion) must be spent by 2016 in order to put the infrastructure in place.
It's enough to make the last deposits of light, sweet easy-to-extract crude even more valuable for producers — and that's assuming you know where to look.
When investors do find those plays, however, the payoff can even more lucrative.
My office cell-mate Christian DeHaemer hit a bull's eye on one such opportunity. His latest video outlines the details of a massive oil discovery.
Not only are his readers banking over 900% from one small oil driller in the play... there are even more gains on the horizon.
Until next time,
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