Why Did West Texas Intermediate Fall More than Brent Crude Oil?



Crude oil prices

On October 27, 2015, WTI (West Texas Intermediate) crude oil prices closed at $43.20 per barrel, the lowest since August 2015. WTI prices were 5% lower than those of October 20, 2015. On October 27, Brent crude oil prices closed at $46.81 per barrel, 4% lower than crude prices on October 20.

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Factors driving crude prices

WTI and Brent crude prices fell more than 3% this week due to concerns of oversupply and less consumption growth. Decreased domestic consumption in China, in addition to OPEC (Organization of the Petroleum Exporting Countries) pumping more diesel, led to oversupply in the global market.

On October 21, 2015, a meeting between OPEC and non-member countries yielded no outcome on cutting the rate of production. OPEC’s fear of losing its share in the crude market, accompanied by disappointing crude oil consumption growth, pressured crude prices to fall. Also, US refinery maintenance cycles and refinery outages have decreased crude oil consumption. However, positive economic data such as the unemployment rate and manufacturing growth in China, the United States, and Japan, could boost crude prices in the short term.

Impact of low crude oil prices

Low crude oil prices result in less revenue generation for crude oil producers such as Apache Corporation (APA), Diamondback Energy (FANG), ConocoPhillips (COP), Murphy Oil Corporation (MUR), Cimarex Energy (XEC), Hess Corporation (HES), and Occidental Petroleum Corporation (OXY). Occidental Petroleum (OXY) accounts for 3.9% of the iShares Dow Jones US Energy Sector ETF (IYE).

Refiners gain from low crude prices due to decreased input costs. Refiners such as Marathon Petroleum Corporation (MPC), Tesoro Corporation (TSO), and Phillips 66 Company (PSX) will benefit from lower crude prices. Phillips 66 (PSX) accounts for 3.2% of the Vanguard Energy ETF (VDE).


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