After looking at NYMEX natural gas earlier in the week through Dwight Schrute, next we move on to the crude complex, and specifically the two global benchmarks; US-based WTI crude oil (represented by Michael Scott / Steve Carell), and UK-based Brent crude oil (represented by David Brent / Ricky Gervais).
There is more of a similarity between the characters and commodities than first realized, as the cringe worthy nature of the Dunder Mifflin boss is something that can be identified with across the world, while crude oil is ‘fungible’ (= it is interchangeable the world over). And although both bosses are equally as embarrassing, a strange situation has arisen in recent months where the two crude benchmarks (which normally track each other closely), have diverged as WTI – in true heroic fashion – has a tragic flaw; it is landlocked (as opposed to being seaborne like Brent).
Michael Scott: Guess what? I have flaws. What are they? Oh I dunno, I sing in the shower? Sometimes I spend too much time volunteering. Occasionally I’ll hit somebody with my car. So sue me– no, don’t sue me. That is opposite the point I’m trying to make.
The landlocked nature of WTI has meant that stockpiles of crude oil have gradually built up at Cushing, Oklahoma (where WTI is priced) as refining has been unable to keep up with increasing supply, and a bottleneck has been created. This bottleneck has created a supply glut, with inventory levels pushing to record highs:
David Brent: Statistics are like a lamp-post to a drunken man – more for leaning on than illumination.
Note, the numbers we are talking about are very large indeed. Current inventories at Cushing sit at over 37 million barrels (although tiny compared to the 726.5 million barrels stored in the US Strategic Petroleum Reserve). The immediate way to reduce Cushing stockpiles would be for less crude to flow into the area, but unfortunately a pipeline has just come online from the Canadian oil sands, further adding deliveries of 350,000 barrels a day. The flipside is then to create more capacity or better infrastructure to get crude / products out of Cushing. Capacity was increased to approximately 52 million barrels last year, and is projected to further increase to approximately 66 million in 2011. Meanwhile, pipeline projects are underway, but will not be in place until 2013. The stark reality is that this problem is not going to go away anytime soon.
Michael Scott: It’s like the end of Spartacus. I’ve seen that movie half a dozen times and I still don’t know who the real Spartacus is. And that is what makes that movie a classic “whodunit.”
In a strange twist of events, Steve Carell – who plays Michael Scott – is leaving ‘The Office’. Just as life imitates art, the status of WTI – the leading character in the US crude complex – is coming under question, as the divergence in price from (David) Brent means it too could be replaced; a Gulf Coast benchmark such as Louisiana Light Sweet (LLS) crude could be a likely successor. All this said, Cushing may resolve its issues and the respective buddies Michael Scott and David Brent may look back on this divergence in a few years time as a minor blip in their relationship. But as for now, just a glimpse at the price action year-to-date in the crude complex, and you’ll see how divided things have become: