North American crude oil markets have undergone significant changes in the past few years, as the U.S. has emerged as a major exporter of crude oil to the global markets. The export era, which began in late 2015, when the U.S. lifted its ban on crude oil exports, has created new opportunities and challenges for the North American crude oil producers, shippers, refiners, and consumers. The export era has also affected the dynamics and the relationships of the various crude oil benchmarks, such as West Texas Intermediate (WTI), Brent, Western Canadian Select (WCS), and Magellan East Houston (MEH). In today’s blog, we will explain how the export era has influenced the North American crude oil markets, and how the different crude oil benchmarks are connected and interact with each other.

The export era has increased the supply and the diversity of crude oil in the global markets, as the U.S. has been exporting various grades of crude oil, ranging from light to heavy, and from sweet to sour, to different regions, such as Asia, Europe, and Latin America. The export era has also increased the demand and the competition for crude oil in the U.S. markets, as the U.S. has been importing various grades of crude oil, mostly from Canada, Mexico, and Saudi Arabia, to meet the needs and the preferences of its refineries. The export era has also increased the volatility and the uncertainty of crude oil prices in the U.S. markets, as the U.S. has been exposed to the fluctuations and the shocks of the global oil demand and supply, such as the COVID-19 pandemic, the OPEC+ production cuts, and the geopolitical tensions.

The export era has also affected the dynamics and the relationships of the various crude oil benchmarks in the U.S. markets, such as WTI, Brent, WCS, and MEH. These benchmarks are the reference prices for the different grades and locations of crude oil in the U.S. markets, and they reflect the quality, the transportation cost, and the market conditions of the crude oil. The benchmarks are also used to price the crude oil contracts and transactions, and to hedge the crude oil price risk. The benchmarks are connected and interact with each other, depending on the availability and the accessibility of the crude oil supply, the demand and the preferences of the crude oil buyers, and the arbitrage and the competition of the crude oil markets.

Some of the key connections and interactions of the crude oil benchmarks in the U.S. markets are:

• WTI and Brent: WTI and Brent are the two most widely used and recognized crude oil benchmarks in the world, and they represent the prices of light and sweet crude oil in the U.S. and the international markets, respectively. WTI and Brent are connected and interact with each other through the crude oil exports and imports, as well as the futures and derivatives markets. The price differential between WTI and Brent reflects the transportation cost and the market conditions between the two regions, and it affects the profitability and the competitiveness of the U.S. crude oil producers and exporters. When the differential is narrow, it means that the U.S. crude oil is more competitive and attractive in the global markets, and that the export demand and the export potential for the U.S. crude oil are high. When the differential is wide, it means that the U.S. crude oil is less competitive and attractive in the global markets, and that the export demand and the export potential for the U.S. crude oil are low.

• WTI Midland and WTI Cushing: WTI Midland and WTI Cushing are the two main sub-benchmarks of WTI, and they represent the prices of light and sweet crude oil in the Permian Basin and the Cushing hub, respectively. The Permian Basin is the largest and the most prolific crude oil producing region in the U.S., while the Cushing hub is the largest and the most strategic crude oil storage and trading hub in the U.S. WTI Midland and WTI Cushing are connected and interact with each other through the crude oil pipelines, such as the Basin Pipeline, the Longhorn Pipeline, and the BridgeTex Pipeline, which transport the crude oil from the Permian to Cushing. The price differential between WTI Midland and WTI Cushing reflects the transportation cost and the pipeline capacity between the two locations, and it affects the netback and the incentive of the Permian crude oil producers and shippers. When the differential is narrow, it means that there is enough pipeline capacity to move the crude oil from the Permian to Cushing, and that the netback and the incentive for the Permian crude oil are high. When the differential is wide, it means that there is a pipeline bottleneck or a glut of crude oil in the Permian, and that the netback and the incentive for the Permian crude oil are low.

• WTI Cushing and MEH: WTI Cushing and MEH are the two main sub-benchmarks of WTI, and they represent the prices of light and sweet crude oil in the Cushing hub and the Houston area, respectively. The Houston area is the largest and the most important crude oil refining and exporting center in the U.S., and it hosts various terminals and pipelines that can access the domestic and the international markets. WTI Cushing and MEH are connected and interact with each other through the crude oil pipelines, such as the Seaway Pipeline, the Marketlink Pipeline, and the Keystone Pipeline, which transport the crude oil from Cushing to Houston. The price differential between WTI Cushing and MEH reflects the transportation cost and the market conditions between the two locations, and it affects the arbitrage and the flow of the crude oil. When the differential is positive, it means that the crude oil is more valuable and in higher demand in Houston than in Cushing, and that the crude oil flows from Cushing to Houston. When the differential is negative, it means that the crude oil is less valuable and in lower demand in Houston than in Cushing, and that the crude oil flows from Houston to Cushing.

• WCS and WTI: WCS and WTI are the two main crude oil benchmarks in North America, and they represent the prices of heavy and sour crude oil in Western Canada and light and sweet crude oil in the U.S., respectively. Western Canada is the largest and the most significant source of heavy and sour crude oil in North America, and it supplies most of the heavy and sour crude oil to the U.S. refineries, especially in the Midwest and the Gulf Coast. WCS and WTI are connected and interact with each other through the crude oil pipelines, such as the Enbridge Mainline, the Keystone Pipeline, and the Express Pipeline, which transport the crude oil from Western Canada to the U.S. The price differential between WCS and WTI reflects the transportation cost and the market conditions between the two regions, and it affects the profitability and the competitiveness of the Western Canadian crude oil producers and exporters. When the differential is narrow, it means that the Western Canadian crude oil is more competitive and attractive in the U.S. markets, and that the netback and the export potential for the Western Canadian crude oil are high. When the differential is wide, it means that the Western Canadian crude oil is less competitive and attractive in the U.S. markets, and that the netback and the export potential for the Western Canadian crude oil are low.

In conclusion, the export era has influenced the North American crude oil markets, and the different crude oil benchmarks are connected and interact with each other, depending on the availability and the accessibility of the crude oil supply, the demand and the preferences of the crude oil buyers, and the arbitrage and the competition of the crude oil markets. The export era has also increased the complexity and the uncertainty of the crude oil markets, as the crude oil benchmarks are affected by various factors, such as the production levels, the pipeline capacity, the refinery demand, the export demand, the global oil prices, and the geopolitical events. The crude oil benchmarks are important indicators of the value and the performance of the North American crude oil producers, shippers, refiners, and consumers, as they reflect their costs, revenues, margins, and risks.