China’s Crude Oil Demand Widened the WTI-Brent Spread



WTI-Brent spread

WTI (West Texas Intermediate) crude oil prices outpaced Brent crude oil prices in the week ending January 15. The WTI-Brent spread narrowed to $0.48 per barrel on January 15. However, the sharp rise in Brent crude oil prices widened the WTI-Brent spread to -$0.45 per barrel on January 19, 2016.

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WTI-Brent spread widened

The US government removed the 30-year-old US crude oil export ban in December 2015. It’s expected to trim the supply glut in US crude oil markets. As a result, WTI prices gained momentum. They traded at a premium over Brent crude oil prices. This won’t continue in the long term due to gasoline and distillate inventory builds. WTI crude prices traded at a discount to Brent crude oil prices.

After the removal of Iran’s export sanctions and turmoil in the Chinese stock markets, Brent crude oil prices fell more than US crude oil prices. WTI prices traded at a premium over Brent crude oil prices from January 13, 2016, to January 15, 2016. The rise in Chinese crude oil imports for 2015 was positive for Brent crude oil prices. So, the WTI-Brent spread widened during this week.

A wider spread yields lower revenue for WTI crude oil producers compared to Brent crude oil producers. This makes it hard to compete with international oil producers. So, US crude oil producers like Occidental Petroleum (OXY), Apache (APA), Cimarex Energy (XEC), Anadarko Petroleum (APC), and Murphy Oil (MUR) will suffer from the wider spread.

ETFs like the United States Oil ETF (USO) and the iShares US Oil & Gas Exploration & Production ETF (IEO) will also be impacted due to tracking WTI crude oil prices.


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