Oil & Gas UK Economic Report 2014

3. Oil and Gas Markets

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Oil Markets and Prices

from the average in 2012. Dubai prices also showed a $3/bbl decline, but the average price of West Texas Intermediate (WTI, the standard quality of crude oil for trading in the USA) at Cushing, Oklahoma, gained $4/bbl as new domestic pipelines from the mid-continent andwest Texas to the Gulf Coast alleviated the over-supply of light crude in the mid-continental region. Gradually, the distortions in international crude oil prices seen from 2011 to 2013 are being corrected (see Figure 1 below). The forward month discount of WTI to dated Brent narrowed from $17/bbl in 2012 to $11/bbl in 2013 and by mid-2014 it had settled in the $5-8/bbl range.

Crude oil prices in 2013 and 2014 have been high, but unusually stable. Brent, the benchmark for most internationally traded crude oil, has for most of these two years been trading within a range of $100-115 per barrel (bbl). Indeed, it has become easy to think of Brent prices in this range as ‘normal’, even though history shows that price stability is typically short lived in oil markets. Indices of daily volatility of Brent prices were again exceptionally low. In 2013, dated Brent averaged $109/bbl, down $3/bbl

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Figure 1: Monthly Crude Oil Prices from January 2008 to June 2014

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140

120

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100

80

Dated Brent WTI Cushing Dubai

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40

Monthly Crude Oil Prices ($/Barrel)

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0

Jan 2008

Jan 2009

Jan 2010

Jan 2011

Jan 2012

Jan 2013

Jan 2014

Source: Argus Media

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ECONOMIC REPORT 2014