Difference between West Texas Intermediate and Brent Sea Crude

This article from the US Department of Energy is educational with respect to the price differential between Brent Sea crude oil and West Texas Intermediate.

It is clear that logistical issues with exporting Canadian oil sands crude will continue, especially if the Enbridge pipeline from Alberta to the Pacific Coast does not proceed. Oil sands production is steadily increasing so the supply pressure will continue to be apparent.

Although crude oil is being mined out, it is subject to cyclical patterns of supply-demand cycles. It should be noted that the last crude spike (in the middle of 2008) was so excessive that in conjunction with the economic crisis, pushed crude down 75% at its trough – producers still must produce supply but if demand lessens they must receive a lower price for the product.

In terms of cost accounting, there are situations where mining product is profitable from a marginal cost perspective, but when you fully burden in capital and other fixed costs, the project as a net becomes unprofitable – we are seeing this somewhat in the natural gas industry presently. Eventually the money-losing producers quit producing and/or demand will increase and you will see a price spike since bringing capacity online is not a speedy process.