26 January 2011 19:28 [Source: ICIS news]
HOUSTON (ICIS)--US-based refiner Valero has begun to take a look at global crude-oil benchmarks as the premium of Brent over West Texas Intermediate (WTI) strengthens, company executives said on Wednesday.
The spread widened to more than $10/bbl.
“It’s a little crazy out there, isn’t it?” asked Joe Gorder, executive vice president of market and supply at Valero. Gorder made his comments during an earnings conference call.
“High inventories of crude in Cushing [Oklahoma] have pressured WTI. Strong demand for Brent [crude oil] in the Far East, and that included west African barrels, with its cold winter [has them] pulling those barrels,” he said.
As the winter winds down, Chinese purchases will slow with the country’s New Year celebrations. However, the length of crude in Cushing will continue to push WTI down, Gorder added.
This spread between Brent and WTI will be a longer term issue, an executive at Valero said.
“What we’ve got to do ultimately to get WTI back to parity is to get Cushing de-bottlenecked,” he said. “There’s length there today, and more product will be moving into Cushing from Canada.”
He said that WTI as a comparison has become nearly irrelevant.
The Maya crude relationship with Brent oil has shown Maya at a 14% discount for both 2009 and 2010. For WTI, the discount for Maya to WTI had increased by 40% from 2009 to 2010.
At Valero, the refineries that the spread has affected are the three mid-continent refineries; Ardmore refinery in Oklahoma and the McKee and Three Rivers refineries in Texas. At those refineries, Valero is running as much WTI as possible in order to help lower Cushing inventories, but aside from that the company’s crude slate has not changed.
Finally, the spread between crude benchmarks has also affected the company’s hedging positions. Valero said that the company had sold forward, based on the crack, about 10% of its 2011 volume. That volume is not ratable from quarter to quarter and will respond to the crack spreads at the time.
In 2010, the company made more than $500m on advanced trading.
“These  positions were put on last year, but its was a much colder winter than expected – so I would say so much for global warming,” said a Valero executive during the conference call. “We hedged 10% of the crack [spread] and everything was looking so good and wonderful, but we did not see the Brent to WTI spread going this wide.”
He said the forward curve shows the spread narrowing, but still, the company’s hedged cracks are not in a great position as factors in the market have changed significantly.
($1 = €0.73)
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