Analyzing the WTI-Brent Spread: Why It Narrowed



WTI-Brent spread

The WTI (West Texas Intermediate) crude oil discount over Brent crude oil narrowed at the start of the week. The WTI-Brent spread narrowed from $3.15 per barrel on November 27 to $2.59 per barrel on December 1. Also, the WTI-Brent spread was $3–$3.2 per barrel in the week ending November 27. It narrowed from the beginning of the week.

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WTI-Brent spread narrowed

Brent started well compared to WTI at the beginning of last week. However, geopolitical tensions in the Middle East weighed on the Brent crude oil prices. So, the WTI-Brent spread widened. It settled at $3.25 per barrel on November 24. After bullish inventory data from the EIA (U.S. Energy Information Administration) on November 25, the WTI-Brent spread widened to $3.15 per barrel on November 27.

At the beginning of this week, the WTI-Brent spread narrowed due to a fall in the Brent crude oil prices. While WTI prices are steady, Brent prices fell because the analysts didn’t expect production cuts from Saudi Arabia ahead of OPEC’s (Organization of the Petroleum Exporting Countries) meeting. At the same time, WTI prices rose slightly due to expectations of higher fuel usage by refineries. The EPA (Environmental Protection Agency) raised the standards. Any positive outcome regarding the production cuts could boost WTI prices. This would result in a narrowed spread.

What’s the impact?

A narrower WTI-Brent spread is a positive indication for US oil producers. Due to the narrower WTI-Brent spread, US oil producers get the same money for their produced products compared to the international producers. This allows US producers to export crude oil to other countries due to benchmarking with international crude oil prices. It increases domestic crude oil producers’ profitability like Apache (APA), Hess (HES), Anadarko Petroleum (APC), EP Energy (EPE), ConocoPhillips (COP), and Oasis Petroleum (OAS).

Some of the companies mentioned above are part of the SPDR S & P Oil & Gas Exploration & Production (XOP) and the iShares U.S. Energy ETF (IYE).


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