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Why West Texas Intermediate Lost Its Status, and What it Means for Oklahoma

Filed by KOSU News in State Impact.
December 18, 2012

Joe Wertz / StateImpact Oklahoma

The U.S. Energy Information Agency used to use West Texas Intermediate as the price benchmark for its oil forecasts.

But not anymore.

The agency will has dumped WTI, which is priced at Oklahoma’s Cushing oil hub, and will use North Sea Brent for its energy outlook.

So why did the oil lose its status? The blame falls on Oklahoma’s glut.

Too much oil has bottlenecked in Cushing, which has driven down the price of the WTI crude stored there. Producers in Oklahoma and other states that produce WTI benchmarked oil aren’t happy about the low price, and are banking on new pipeline projects to drain the Cushing glut and reduce the price gap between WTI and Brent, which is priced in London.

The price gap has made it hard to use WTI as the benchmark to measure what refineries are actually paying for crude imports.

From Reuters:

The landlocked nature of WTI led the world’s biggest oil exporter, Saudi Arabia, to drop the U.S. crude as the basis for U.S. sales in favour of a basket of Gulf of Mexico crudes.

So if domestic producers are using international crude prices to gauge production and oil reserves, what does this mean for Oklahoma?

Not much, The Oklahoman’s Adam Wilmoth reports:

The change likely will not affect sales or profits. But it could make reserves in the ground look better because at higher prices, producers can afford to recover more of the oil and natural gas held deep below ground.

“If you’re calculating your reserves with Brent prices, it will look like you have more reserves because you will hit your economic limit later,” said Rand Phipps, who is chairman of the Mid-Continent Oil and Gas Association and chief operating officer at Oklahoma City-based Mustang Fuel Corp.

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