U.S. crude discount to Brent deepens $1 on oil train derailment

Fri Nov 8, 2013 1:51pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jeanine Prezioso

NEW YORK Nov 8 (Reuters) - The discount for U.S. crude oil futures versus European Brent deepened by more than $1 a barrel on Friday after a train carrying crude oil derailed and exploded in Alabama, spurring worries of tougher regulation and higher costs.

The 90-car train carrying North Dakota crude to Walnut Hill, Florida, derailed in rural Alabama, with nearly a dozen cars bursting into flames reaching hundreds of feet high. There were no injuries, and the cars were left to burn, officials said.

The incident, the latest in a series involving oil trains, threatens to step up calls for more regulation such as retrofitting older tank cars or increased quality controls, adding to the cost of shipping crude oil by rail.

Rising transport costs could drive down prices for inland domestic crudes, which would need to fall in order to compete with imports on the coast, analysts said. Rail trade has become crucial in delivering burgeoning North Dakota shale and Canadian crude to refineries along the East and Gulf coasts.

"What will happen is that it will lead to regulations and every time you add new regulations, it will increase the cost, and that will increase the gap between Brent and WTI," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis.

"When you have these train accidents, you're not going to stop training crude, the cost will just go up and the cost has to be expected in the spread."

Brent's premium over U.S. oil benchmark, West Texas Intermediate (WTI) widened by more than $1 to a session high of $10.39 per barrel. The spread reached a record $28 last year amid a pent-up glut of crude in the U.S. Midwest, but has traded at less than $12 for most of this year.

Brent oil rose by as much as $1.50 close to $105 per barrel, while U.S. prices were flat.   Continued...