uploads///WTI Brent Spread

Russia’s Steps toward Production Cuts Widen the WTI-Brent Spread

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Jan. 29 2016, Updated 6:31 a.m. ET

WTI-Brent spread

WTI’s (West Texas Intermediate) crude oil price premium over Brent crude oil prices turned to a discount. WTI prices were $0.1 per barrel more than Brent crude oil prices in the last week. This week, Brent crude oil prices were trading $0.67 per barrel more than WTI crude oil prices. As a result, the WTI-Brent widened this week.

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WTI crude oil traded at discount over Brent crude oil prices

In the last week, the WTI-Brent spread favored WTI crude oil. However, the announcement from Russia to cooperate with OPEC (Organization of the Petroleum Exporting Countries) on production cuts boosted Brent crude oil prices more than WTI crude oil prices. WTI crude oil prices turned premium over Brent crude oil after Congress voted to remove a 40-year-old US crude oil export ban. The continued rise in gasoline and crude oil inventories narrowed the WTI-Brent spread.

Brent crude prices are also under tremendous pressure. Removing western sanctions led to heavy production levels from Iran. This pulled down Brent crude oil prices. However, Russia’s latest announcements are the only favoring factor for Brent prices. If the deal works between Russia and OPEC to trim global crude oversupplies, it could result in a spike in Brent crude oil prices. The WTI-Brent spread would widen.

Impact

The wider WTI-Brent spread demotivates US crude oil exports due to lower prices compared to Brent crude oil prices. This could impact the production levels. A lower production volume yield lowers crude oil producers’ revenue like Whiting Petroleum (WLL), Anadarko Petroleum (APC), Devon Energy (DVN), Murphy Oil (MUR), and Occidental Petroleum (OXY).

Occidental Petroleum accounts for 3.7% of the Energy Select SPDR (XLE).

Next, we’ll discuss updates on crude oil price forecasts.

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