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Oil Prices Keep Falling, But a Strange Gap Persists

Oil Prices Keep Falling, But a Strange Gap Persists

Oil prices are down more than 20 percent since mid-March. Yet that hasn’t erased a strange anomaly in the market: the gap between two essentially identical types of oil. North American light, sweet crude, also known as West Texas Intermediate, trades just below $84 while its international equivalent, known as Brent, is priced at $97.

Why would two similar products sell for such different prices? The problem is getting hold of WTI and connecting supply with demand. The gusher of new domestic oil production coming out of shale deposits in North Dakota, Texas, and Oklahoma has outstripped the country’s pipeline capacity to move it around. The result is a supply glut that has built up in the middle of the country, lowering the price of WTI. Refineries along the Gulf Coast would love to get their hands on more cheap domestic crude, but they can’t simply call an oil supplier and have a load of cheaper WTI delivered whenever they want. While pipeline projects to solve the problem are just getting underway, there’s still no easy way to get large quantities of WTI down to the country’s refining hub along the Gulf Coast. So refiners remain trapped, forced to keep taking more expensive imported oil.