U.S. Crude Oil Benchmark Proves Understated

The commodity price for crude oil may be stronger, the margin for oil refining more sustainable and the oil-equivalent commodity price for natural gas producers higher than we have represented using the understated U.S. crude oil benchmark.

The quote for immediate delivery of U.S. light, sweet crude oil of about $74 a barrel ought to be $79 to match the price quoted for Brent, the European benchmark. Since our cautious increase
in long-term crude oil price for estimating present value to $66 a barrel on May 29, stock prices have increased to reflect about $54 a barrel.

Refining margins that looked unsustainably high when measured against the low U.S. crude oil benchmark look more long-lasting when measured against actual crude oil cost. At the same time, natural gas is even more depressed relative to crude oil than we have emphasized. Low McDep Ratio buy recommendations up less in stock price compared to the 60-day average include crude oil producer Encore Acquisition (EAC), integrated refiner BP plc (BP) and natural gas producer Devon Energy (DVN).

Comments

[Dave Marino...:]

Your prices for crude are way off. As of Aug 1, nearby WTI futures were over $76/barrel, and more than $1/barrel above nearby Brent. At those prices, how is the US benchmark understated?

2007 Aug 02 12:26 PM