NEW YORK ( Real Money) -- Not enough pipe. Not enough refinery space. Too much oil. That's the story of the Permian oil field, where production has increased as astounding 400,000 barrels a day in the last two years.
That's caused a discount to the already-discounted West Texas Intermediate price. How big is it? Right now, West Texas is selling for a discount of $10 to Brent -- $98 vs. $108 -- and then Permian is selling at an additional $8 decline to the $98 price as Permian producers duke it out for pipeline space and take discounts galore to do so.
That's behind the remarkable resurgence of the refiners as the ones on the Gulf are buying $90 oil and then selling that refined product for the world price, making a killing in the process. It's this glut of Permian oil that's causing the margins to expand at a breathtaking pace and it is unlikely to reverse itself any time soon.
Dan Dicker and I had a good sit down about the price differential in a video, but what you need to know is that, according to RBN Energy, the source I use for all things energy in this country, the discount is not going to go away any time soon. In fact, it should get worse before it gets better because the oil is being pumped in increasing amounts, and new pipe that can help alleviate the space constraints won't be available until at least June. That means three more months of wide spreads and three more months of outsize profits for Alon USA Energy (ALJ), Marathon Petroleum (MPC) and HollyFrontier (HFC), all of whom reside at the other end of the pipe from the Permian.