Why Kern oil recently fell below the U.S. benchmark

How quickly things change on the oil market.

Two weeks ago the price benchmark for Kern County crude, Midway-Sunset, towered over West Texas Intermediate, the national standard. But now WTI is on top.

Observers say this sudden turnaround, the continuation of a decades-old rivalry, reflects plummeting demand and an unfortunate oversupply evident in a veritable fleet of tankers floating just off California’s coast.

Practically speaking, it means locally produced oil is being devalued by a glut of cheap imports.

“We’re certainly caught in the

crossfire, big time,” said Steve Layton, president of Bakersfield-based oil producer E&B Natural Resources.

WTI long enjoyed the higher value, partly because it’s lighter than much of the oil produced in Kern. Depending what local refineries are set up for, heavier crude often fetches a lower price.

WTI’s lead evaporated in 2011, when a bottleneck in the Midwest pushed its price lower, leaving

Midway-Sunset with a relative advantage.

The price differential prompted oil companies to send mile-long oil trains carrying Midwestern oil to California, where prices were stronger and the only other way to get crude to the state was by ship.

West Texas Intermediate dropped again in the middle of last month as a quirk in the oil trading market pushed its price below zero for a short time. Midway-Sunset, meanwhile, held relatively steady.

Since then, however, WTI has surpassed Midway-Sunset. On Tuesday, WTI was listed at $26.49 per barrel, about $3 more than the price posted for MWSS.

Some blame Saudi Arabia, saying the price war it started along with Russia in late February has flooded the U.S. market, where the cost of production tends to be much higher than in the Middle East.

While there is broad suspicion the Saudis’ production jump was aimed, in part, at undermining shale oil producers in the Midwest, the effects have been felt sharply in California, which relies on imported oil for roughly twothirds of its supply.

An April 22 news report by Bloomberg estimated that three dozen tankers in the waters between Long Beach and San Francisco were loaded with a combined 20 million barrels of oil, enough to meet a fifth of the world’s daily need.

“There’s enough oil out there to paint (California) from top to bottom,” local oil producer Chad Hathaway said by email Wednesday.

Layton noted California refineries still require the kind of heavy crude produced in Kern County. He also said it’s unclear how much of the oil parked off the coast has come from Saudi Arabia, which has been a leading supplier to California in recent years.

The California Energy Commission, offering its take on why WTI recently overtook MWSS, noted in an email Wednesday that California refiners have been processing less oil lately — 35.5 percent less from the week ending March 20 to last week.

That decline in demand, it said, has been a major contributor to lower prices.