Higher crude runs in the Midwest and easing crude oil transportation constraints that are allowing more domestic crude oil to reach U.S. Gulf Coast refineries have pushed the WTI futures curve into backwardation over the next several months. This backwardation, with prices for close-in delivery above those for delivery in future months, creates an incentive to sell crude from inventory. On June 20, when the contract for August delivery became the prompt futures contract, prices for the next two months fell, resulting in the first consistent period of WTI backwardation since November 2011. In addition, on July 10, the prompt contract (August) premium over the second month reached $0.90 per barrel, the highest level since 2008. Spreads between the front month and longer-dated contracts are even wider. As of July 10, the December 2013 contract was trading at $4.23 per barrel below August.
On the Gulf Coast, inventories have fallen 16.3 million barrels since June 21, and in the Midwest inventories are down 6.8 million barrels. At Cushing, Oklahoma, the delivery point for the Nymex WTI futures contract, stocks fell 2.7 million barrels the week of July 5 and another 882,000 barrels the following week. Trade press reports indicated that crude production that was being delivered to Cushing storage is now being delivered directly to the Gulf Coast, thus reducing supply at Cushing. In addition, a syncrude crude processing facility in Canada was reported to have been out of service, reducing regional supplies of light sweet crude oil. Although average 2013 Cushing inventories remain 25 percent above 2012 levels, stock levels have declined for much of 2013 and are now slightly below their 2012 level. Along with pipeline infrastructure changes that have allowed crude to bypass Cushing, rail is facilitating the movement of crude oil directly from the Bakken formation in North Dakota to refineries on both the East and West coasts.
In addition to pushing the WTI market into backwardation, these developments are helping to raise Midcontinent spot prices, narrowing the spreads between North Sea Brent and WTI and between Bakken and Light Louisiana Sweet (LLS) crude oils. However, the resumption of syncrude imports and an anticipated refinery switch by BP Whiting to heavier Canadian crude later this year could take upward pressure off prompt WTI prices, flattening the forward curve.
Gasoline prices up for a second week; diesel fuel up for a third
The U.S. average retail price of regular gasoline increased five cents to $3.68 per gallon as of July 22, 2013, up 19 cents from last year at this time. The largest increase came on the East Coast, where the price is up seven cents to $3.66 per gallon. The Gulf Coast price is $3.51 per gallon, six cents higher than last week. The West Coast price is $3.95 per gallon, three cents higher. The Midwest price is $3.66 per gallon, two cents higher. Rounding out the regions, the Rocky Mountain price increased a penny to $3.62 per gallon.
The national average diesel fuel price increased four cents to $3.90 per gallon, 12 cents higher than last year at this time. The East Coast, Gulf Coast, Rocky Mountain, and West Coast prices all increased four cents, to $3.92, $3.84, $3.87, and $4.04 per gallon, respectively. Rounding out the regions, the Midwest price is up two cents to $3.88 per gallon.