ND Oil v. WTI

A former student, who blogs at justadatageek.com, had a question about the connections between North Dakota oil prices and West Texas Intermediate crude prices. This was because of some of the distinctions between ND first purchase price and the Brent crude price.

The integration between the North Dakota price and the WTI price seems similar. As it stands the relationship looks very similar to that with Brent. Clearly though there are differences and to take a further look I plotted the difference of ND price less West Texas Intermediate crude price.

There is remarkable stability in the price difference per barrel over time. One of the remarkable features is the consistency of the negative value of the series. WTI price is almost always higher than North Dakota first purchase price. Now there is a remarkable stability prior to about 2002, after which the price differential turns more in favor of WTI.

It appears to me that there is a new mean differential about $5 more at $7.50 difference in favor of WTI. The spread is a bit different, exhibiting way more volatility over time. There may even be a little convergence after 2011 and approaching the old spread of $2.50.

The reasons for the gap vary over time and include supply and demand factors, transportation costs, refinery capacity, and many others. With oil such an important output in the state it seems important though to both understand the relationships between these price measures and why they may be moving in specific directions.

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