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The Big Shift in the WTI-Brent Spread in December 2015

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WTI-Brent spread

On December 1, 2015, front-month WTI (West Texas Intermediate) crude oil futures contracts settled at $41.85 per barrel. On the same day, Brent crude oil prices closed at $49.18 per barrel. Thus, the WTI-Brent spread was $7.33 per barrel on December 1.

Things changed in 2015 with the lifting of the US crude oil ban. In December, the WTI-Brent spread turned premium. WTI crude oil prices closed at $36.60 per barrel yesterday, and Brent crude oil settled at $36.46 per barrel. Thus, the WTI-Brent spread was $0.14 per barrel.

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Impact

Prior to the lifting of the crude oil export ban, the wider WTI-Brent discount benefited US refiners like Phillips 66 (PSX), Tesoro (TSO), and Valero Energy (VLO), as they paid less compared to the highly priced Brent crude oil. Conversely, lower crude oil prices negatively affected US producers like Anadarko Petroleum (APC), ConocoPhillips (COP), Oasis Petroleum (OAS), and EOG Resources (EOG). Despite the lifting of the export ban, the current WTI-Brent spread makes US crude oil exports unviable.

Brent and WTI crude oil benchmarks

The Brent oil price is the benchmark for global crude oil. It is the receiving price for global crude oil producers. The WTI oil price is the benchmark for US crude oil. It is the receiving price for US crude oil producers.

Volatility in the market affects ETFs like the iShares US Oil & Gas Exploration & Production ETF (IEO) and the PowerShares DWA Energy Momentum Portfolio (PXI). The underperforming energy sector puts pressure on broader indexes like the SPDR S&P 500 (SPY).

In the next part of this series, we’ll explore how the global supply and demand gap will put pressure on the oil market in in 2016.

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