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Crude Oil Market: WTI and Brent Crude Oil Spread Narrows

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WTI and Brent price action

July WTI (West Texas Intermediate) futures contracts trading on NYMEX closed at $59.97 per barrel on June 16, 2015. Likewise, August Brent crude oil futures settled at $63.70 per barrel. The difference between WTI crude oil and Brent crude oil is at $3.73 per barrel as of June 16, 2015. The average spread between WTI and Brent was at $4.81 per barrel in May 2015. The spread has been dropping. The June average until June 16, 2015, is at $3.20 per barrel.

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The narrow spread is negative for US refineries like Marathon Petroleum (MPC), Phillips 66 (PSX), and Valero Energy (VLO). Combined, these companies account for 7.57% of the Energy Select Sector SPDR ETF (XLE). Energy ETFs like XLE and the SPDR Oil and Gas ETF (XOP) are also impacted by crude oil volatility.

The monthly STEO (Short-Term Energy Outlook) report was published on June 9, 2015, by the EIA (U.S. Energy Information Administration). Government data showed that WTI crude oil could trade around $56 per barrel in 2015 and $62 per barrel in 2016. Brent crude oil prices could trade around $61 per barrel in 2015 and $67 per barrel in 2016. The expected long-term spread between WTI and Brent crude oil is at $5 per barrel.

Crude oil benchmarks

Brent crude oil is the international benchmark for crude oil. Brent represents the receiving price of international oil producers. Like wise, WTI is the crude oil benchmark for the US. WTI crude oil is priced at Cushing, Oklahoma—the delivery point of the NYMEX crude oil futures contracts. WTI’s price represents the receiving price of oil producers in the US. A wider spread benefits US refiners, while a narrower spread benefits US oil producers.

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