uploads///WTI Brent Jun  to Jun

Must-know: The WTI-Brent oil spread reacts to falling crude prices

By

Aug. 4 2014, Updated 5:00 p.m. ET

WTI and Brent used to trade closer, but prices have diverged over the past few years

The spread between West Texas Intermediate (and WTI) and Brent crude represents the difference between two crude benchmarks. WTI represents the price oil producers receive in the U.S. and Brent represents the prices received internationally. The two crude oils share a similar quality. However, off late, the prices have differed greatly between the two crudes because the recent production surge in the U.S. caused a buildup of crude oil inventories at Cushing, Oklahoma, where WTI is priced. This created a supply and demand imbalance at the hub, causing WTI to trade lower than Brent.

WTI-Brent widened last week

The WTI-Brent spread closed at $7.85 per barrel on Thursday, July 31, compared to $6.3 per barrel at the prior week’s close. The spread widened despite a crude oil inventory level decrease that was more than the analysts’ expectations

Both grades of crude fell last week. But WTI decreased more due to:

  • A fire in a Kansas refinery, causing the refinery to shut down and therefore threaten crude demand
  • A strong dollar, making dollar-priced oil commodities more expensive for foreign currency holders and thereby reducing demand
  • An increase in gasoline stockpiles, also causing WTI to trade lower

A wider spread causes domestic oil producers like Chesapeake (CHK), Concho Resources (CXO), Range Resources (RRC), and Oasis Petroleum (OAS) to realize lower prices on oil compared to international producers. Most of these companies are components of the Energy Select Sector SPDR ETF (XLE).

Outlook

The increased transportation capacity from Cushing to demand centers like refineries on the Gulf Coast is bullish for WTI crude oil prices.

Article continues below advertisement

Also, as you saw in the previous part of this series, stocks at Cushing continue to decrease. Since the beginning of 2014, weekly crude inventory at Cushing, Oklahoma, has fallen from 40.7 million barrels to 17.9 million barrels for the week ending July 25. This could bring WTI and Brent prices closer together.

Natural gas

The next part of the series will cover changes in natural gas inventory levels and natural gas prices.

Advertisement

More From Market Realist

  • People at a gas station
    Energy & Utilities
    Best Gas Stocks to Buy After the Colonial Pipeline Attack
  • Recon Africa employees
    Energy & Utilities
    Is Recon Africa a Multi Bagger Stock You Should Buy?
  • Dr. Donald Sadoway (second from left) pictured with Paula S. Aspell, David Pogue, and Chris Schmidt
    Energy & Utilities
    Ambri Expands in the Liquid Metal Battery Space, Still Privately Held
  • Valero gas station
    Energy & Utilities
    Valero Energy’s Prospects in 2021, Rebound in Energy and Gas
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.