Why There's So Much Interest In Half A Keystone XL In One Graph

A blog about business and economics.
Feb. 28 2012 5:00 PM

Why There's So Much Interest In Half A Keystone XL In One Graph

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As you can see above, the spot price of West Texas International crude oil in Cushing, Oklahoma is always approximately the same as the price of Brent crude oil in the global market. That's because oil is a non-perishable commodity that you can pipe around to different places or even load onto giant ships. What matters is the global price, not idiosyncratic supply and demand conditions in some particular location.

But not recently. New oil discoveries primarily in North Dakota have created a situation where the quantity of crude that can be easily shipped to Cushing exceeds the quantity that can be piped down to Texas refineries for global markets. This has depressed the price of crude in Cushing, and created a situation where gasoline prices in the American midwest are lower than the prices that prevail elsewhere. If TransCanada succeeds in its effort to get the southern half of the Keystone XL pipeline built then this price anomaly should go away. All else being equal (which it won't be) Midwesterners will wind up paying more at the pump and everyone else will wind up paying less and presumably we'll see even more investment in extraction in North Dakota.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.