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Why WTI Crude Oil Prices Are Outpacing Brent

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WTI-Brent spread

WTI (West Texas Intermediate) crude oil prices have been outperforming Brent crude oil prices. Brent prices are thus trading at a discount over WTI prices. The WTI-Brent spread narrowed from -$0.39 per barrel on January 8, 2016, to $0.48 per barrel on January 15, 2016.

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US crude oil supplies and Iranian crude oil production

US crude oil production averaged 9.4 MMbpd (million barrels per day) in 2015. In 2016, it’s expected to decline by 7.4% to average 8.7 MMbpd. It’s expected to decline further in 2017 to average 8.5 MMbpd. From these estimates, it’s clear that US crude oil supplies are going to be tighter in upcoming years. This trims the supply glut in US crude oil markets. WTI crude oil prices (USO) will benefit as a result.

According to a Reuters report, Iran is ready to ship 1.1 MMbpd of crude oil in January 2016. That’s about 20% more than December’s exports. Crude oil will flood the European and Indian markets to add to the glut that’s already affecting the global crude oil market.

US crude oil supplies are tightening. But European crude oil markets will feel the impact from the flood of crude oil. So WTI has evolved as the premium crude oil over Brent crude oil. Premium prices for WTI crude oil allow US oil producers such as Diamondback Energy (FANG), Apache (APA), Anadarko Petroleum (APC), Hess (HES), and Conoco Phillips (COP) to sell at prices that are higher than their international counterparts who are producing Brent crude oil.

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