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WTI-Brent Narrowed Briefly Last Week Only to Widen Again




The divergence between WTI (West Texas Intermediate) and Brent remained flat last week—compared to the week before. The differential as of Friday, April 17, was $6.17—compared to $6.30 as of Friday, April 10.

While both the benchmarks saw a lot of activity, mostly bullish, the net effect remained an almost unchanged WTI-Brent spread—compared to the week before. The differential narrowed to as much as $3.93 last Tuesday, only to widen back to levels close to $6 at the end of the week.

Both of the benchmarks saw support from speculation about possible easing of US crude supplies. Brent was also supported by OPEC’s forecast. It said that US output of crude oil and NGLs (natural gas liquids) will decline from 3Q15 onwards.

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WTI-Brent converged significantly since February when the differential widened to ~$12. Increasing domestic supplies kept WTI from advancing as much as Brent. Refinery outages also impacted WTI prices. To put this into perspective, in January they were trading near parity. This clearly shows how volatile global oil markets have been over the last few months.

A wider spread is negative for US producers like Hess (HES), Apache (APA), Marathon Oil (MRO), and Pioneer Resources (PXD). A wider spread generally means that US producers receive comparatively less money for their crude output than their international counterparts.

All of these companies are part of the iShares Global Energy ETF (IXC). They account for ~3.5% of the ETF.


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