Single measures for oil prices were never perfect
The combined group would have about 35 percent of the grey herve leger dress market, Deutsche Bank estimated. Express Scripts tried to buy Caremark four years ago when the big companies in the sector were less dominant, and even then Caremark fended off the approach by arguing that such a deal would not fly in Washington.
Express and Medco do not seem especially confident this time. They took the unusual step of waiving breakup fees if the merger was not approved. By contrast, even AT&T is promising to pay a breakup fee if regulators turn down its takeover of T-Mobile.
That difference aside, Express is borrowing AT&T’s tactics. For example, Express says the combination would not harm consumers partly because of Medco weaknesses. One is that UnitedHealth Group, a big health insurer, has declined to renew a contract that accounts for more than 15 percent of Medco’s revenue. Express argues that because UnitedHealth will do the job itself the market is becoming more, not less, competitive.
Perhaps. But regulators will want assurances that a more dominant Express-Medco would pass red bandage skirt savings on to customers, not just to shareholders. Either way, Wall Street’s warm reception of the deal highlights how much is at stake. Expect Express Scripts to fight hard to get its way.
The price of oil has become harder to grasp thanks to the gap between the main crude benchmarks: European Brent and cheaper American West Texas Intermediate, or W.T.I. Contrary to market expectations, this gap could widen over the next year as more American crude is stranded at home.
Single measures for oil prices were never perfect. Crude comes in different qualities, and transport costs affect buying decisions. Dominant producers like Saudi Arabia pretend their oil is not even traded, but bought at the price they decide is right. The Brent benchmark, based on shipments of North Sea oil, emerged in the 1980s partly as a way of skirting this problem.
But in recent years both Brent and W.T.I. have faced challenges. Flagging oil production in the North Sea led to upward pressure on Brent crude prices, and markets may not be deep enough to provide effective price discovery. Platts, an energy information provider that is the custodian of the benchmark, has worked to keep the price relevant by, for example, bringing new oil fields into the calculation. The decline in North Sea output — down 40 percent since 1999, according to Citigroup — still makes its life difficult, however.
As for W.T.I. crude, inadequate pipeline infrastructure makes getting the stuff out of North America difficult, and that depresses its price, especially when local demand is weak. The imbalance could get worse. Oil production in North America is growing faster than expected. Canadian producers, for example, recently said output would grow to 3.4 million barrels a day from 2.7 million by 2014, and North Dakota production is surging. Meanwhile efforts to build pipelines are mired in political controversy.
Market prices for oil futures imply that the difference between Brent and W.T.I. prices, which is near its $22 a barrel record, will narrow over the next year to $12 as these problems recede. This is starting to look too optimistic. Citigroup estimates the gap could widen to as much as $40 this year, a big difference given Brent is about $120 a barrel. But it is becoming trickier to see either benchmark as a truly representative price for oil.
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