WTI and Brent
WTI’s (West Texas Intermediate) discount to Brent widened last week compared to the week before. The differential as of Friday, April 24, was $8.19 compared to $6.17 on Friday, April 17.
Both the benchmarks saw support from speculation that US crude output was easing, Brent also saw increased support from the crisis in Yemen.
WTI and Brent have been volatile in the past months. It had significantly converged since February when the differential widened to ~$12. It hit levels near $3 in the week ended April 17. It widened back to levels near $8 last Friday, April 24. To put this into perspective, in January, WTI and Brent were trading near parity. This shows how volatile global oil markets have been over the last few months.
A wider WTI spread is a negative for US producers such as Chevron Corporation (CVX), Apache Corporation (APA), Marathon Oil (MRO), and Pioneer Natural Resources (PXD). A wider spread generally means that US producers receive comparatively less money for their crude output compared to their international counterparts.
All these companies are components of the iShares Global Energy ETF (IXC) and make up ~10.5% of the ETF.
However, US refiners such as Valero Energy (VLO) benefit from a wider WTI spread since they have access to cheaper crude oil than refiners do elsewhere. These companies also get international prices that are benchmarked to Brent crude for their refined products, which don’t have export impositions. So a wider spread enhances their profitability.