The 'Brent Oil Premium' Could Help Rekindle American Manufacturing

Includes: OIL, USO
by: Mark J. Perry

Diapson Commodities just released a detailed study of the world oil market and it reports that brent oil for December 2011 delivery is selling at a $25.30 per barrel premium over West Texas Intermediate (WTI). For many detailed reasons outlined in the study, Diapson expects this premium to continue, thus the report's title "Brent Oil Premium Over WTI: It's Here to Stay."

The implications of the brent oil premium are significant because U.S. manufacturers buy oil at the WTI price, while Asian and European manufacturers pay the brent oil price, giving U.S. manufacturers a huge energy cost advantage over their foreign competitors. Expansion of the Canadian oil sands production, the shale oil and natural gas booms, and the Keystone XL pipeline will provide additional support to this energy cost advantage favoring American manufacturers.

Diapson Commodities predicts in its report that the "quality spread" (another term for the brent oil premium over WTI) will help to rekindle U.S. industrialization:

Manufacturers of energy-intensive goods located in the United States will have an enormous advantage over competitors in Europe or Asia, including China, in the next few years from the point of view of costs. This might even hasten the return of manufacturing from emerging market countries back to the U.S.

This is another factor favoring increased manufacturing production in the U.S., including "reshoring," (moving production back to the U.S. from overseas) as part of the pending "renaissance of American manufacturing" that has been documented here on many occasions.