With more crude expected to move to the East Coast, and with Gulf Coast refineries expected to increase processing of light sweet crude, the discount of WTI to Brent will reflect the economics of transporting and processing the growing production of light sweet crude oil in U.S. and Canadian refineries. The forecast WTI discounts should continue to encourage rail shipments of light sweet crude from the Bakken formation. Increased volumes of North American crude oil are already moving to refineries in PADD 1 and eastern Canada. Favorable crude oil transportation economics could provide incentive to continue expanding rail capacity to the U.S. East and West coasts and to expand exports from the U.S. Gulf Coast to Canada. These expansions would provide additional outlets for rising U.S. and western Canadian crude oil production. However, even with additional volumes of domestically produced crude oil moving to the East and West coasts, light sweet crude oil supply to the U.S. Gulf Coast will still exceed take-away capacity in the near future.
As a result, larger price discounts for U.S. crude oil production versus alternate world crudes, such as greater WTI and LLS discounts to Brent, may be needed to encourage Gulf Coast refiners to process the increased supplies. Additionally, the price spread between light and heavy crudes in the United States will need to narrow to encourage displacing heavier crudes with increasing volumes of light crude.
Longer term, there are refinery investments to process more light crude and to increase condensate splitter capacity. Some of these upgrades are expected online later this year and into 2015, and they could provide enough capacity to absorb some of the coming supply increase. However, in the short term, WTI's discount to Brent will likely have to widen from its current levels as refinery crude runs decline during the spring maintenance season.
Gasoline and diesel fuel prices increase
The U.S. average retail price of regular gasoline increased two cents to $3.31 per gallon as of February 10, 2014, 30 cents lower than last year at this time. Prices decreased one cent on the East Coast to $3.35 per gallon, while increasing in all other regions of the nation. The Midwest price increased five cents to $3.28 per gallon. On the West Coast the price was $3.52 per gallon, up three cents from last week. The Rocky Mountain price gained a penny to $3.14 per gallon, and the Gulf Coast price was $3.09 per gallon, less than a penny more than last week.
The national average diesel fuel price was up three cents to $3.98 per gallon, 13 cents lower than last year at this time. Prices increased in all regions of the nation, with the largest increase on the East Coast, where the price increased five cents to $4.12 per gallon. The Midwest price was $3.97 per gallon, three cents higher than last week, and the Rocky Mountain and Gulf Coast prices both increased one cent, to $3.87 per gallon and $3.79 per gallon, respectively. The West Coast price was up a fraction of a penny to $4.00 per gallon.