Brent - WTI

Before a Keystone XL, you still have to contend with a Seaway reversal, Shell's reversal of the HoHo line, and the Delek US line. Each of these could be done within 2012 or early 2013 - with XL bringing up the rear in late 2013, early 2014.

The oversupply to Cushing isn't as high as you'd imagine, and would be erased before XL even came into service.

How does HOHO line matter? Isnt that moving production from west texas to louisana? PADD 2 crude stocks are getting close to approaching last years levels. Cushing isn't there yet but its steadily increasing. If you ask me with brent ti widdening like it is...its saying the seaway isnt enough to remove the oversupply the midcontinent has.

Seaway is set to reverse as soon as April 1 with only 130-150 K Bbl/D of initial flow. The 400 you speak of isn't till 4Q '12. Theres no doubt that eventually there will be enough capacity to move crude but in the short term it doesn't seem like it will be enough. We are in turnaround season now, we should see large builds in Crude.

The Ho-Ho line is only effecting Eagle Ford production not the permian basin where crude goes to cushing. XL pipeline is a long ways a way from getting done.

Sure, in the short term (i.e. 2012), you might still have a flareup in the spread - especially if Iran gets any hotter. However, in the long-run (over a year), I would expect the spread to narrow, so watch your bets.

As for your comment on the Ho-Ho line only affecting Eagle Ford production, that's not entirely true. Even if you assume that this was the case however, you'd still get a narrowing in the spread - not because Cushing became de-bottlenecked but because supply to the gulf coast refineries would rise, thereby dropping the price for LSS and by extension - Brent.

Agreed. This is a pretty good case study for any economics class. Short Run Vs. Long Run etc.. In recent days it looks like the iran news has cooled off. The only reason i say that is because of the reversion in the brent spreads.

Just curious, but what do you guys think about long term crude on rail?

Unsustainable and expensive. Buffet's making a killing off of the North Dakota Bakken at the moment - but it's ultimately unsustainable, as market forces will act to bring competition to the market in the way of pipelines (which are cheaper to operate on a per-barrel basis). However, the bottleneck likely won't be eased until XL is in play. The currently proposed "leg" of XL won't reach to the Bakken, though there is talk that either TransCanada or Enbridge may consider an expansion of their current lines to serve the play in the meantime (nothing yet substantiated).

If you'd like an interesting spread to trade - look at Canadian (Edmonton Light) vs. WTI. Due to capacity constraints, the spread to WTI is widening, and may be a longer-term factor than even Brent-WTI.

Also interesting is the heavy/light differential, which should narrow as more capacity to the gulf coast is built. Gulf coast refineries are outfitted to process a large amount of heavy sour from Venezuela, making a transition to Canadian heavy from the oil sands an easy and cheap one.

Is that Alberta Suncor Upgrader issues making those diffs fluctuate?

I haven't heard much of a bakken crude line though I believe there is an Enbridge line which is maxxed out moving crude to Clearbrook,MN.

The Suncor upgrader is actually easing the spread between Edmonton v. WTI because it normally produces SCO (Synthetic Light Oil) which competes with Edmonton Light. Instead, Suncor is sending the bitumen down raw, which increases heavy oil supplies and reduces light oil.

The light oil differential is mostly to do with refinery outages in the states, which reduce demand for crudes, and put a discount on Canadian crudes (as they are farther, and more expensive to produce).

by light oil are you referring to light cycle oil? I believe this is used in refineries to adjust yields towards a greater distillate cut. thx