The graph shows the price of a barrel of oil. Two types, to be exact: The blue line shows West Texas Intermediate (WTI) quality oil at delivery in Cushing, Oklahoma, a significant pipeline hub. The red line shows oil from the North Sea, referred to as Brent Crude. The two lines are typically very close to each other, with Brent being about $3 cheaper because of its slightly different characteristics and transportation costs. But things change for the years 2011 to 2014: WTI is much cheaper—up to $26 cheaper. What happened? Many factors may have contributed to this phenomenon, the most likely being the increased extraction of tar sands in Alberta, Canada, and a boom in oil extraction through fracking in the interior U.S. This glut overwhelmed the transport infrastructure and made it difficult to move all this oil to destination. Once more pipelines came online and the railroad transport toward the East Coast expanded, the price differential returned to normal, with relatively frictionless arbitrage between the various oil types and thus similar prices. This means that the different blends can be traded on the market as close substitutes while being easily accessible, and this makes their prices converge toward each other.
How this graph was created: Search for “crude oil price,” select the two series, and click on “Add to Graph.”
Suggested by Christian Zimmermann.