Why Did WTI and Brent Crude Oil Prices Diverge?



Crude oil prices decline  

US benchmark West Texas Intermediate crude oil futures contracts for March delivery fell by 1.8% and closed at $27.45 per barrel on February 10, 2016. In contrast, Brent crude oil prices rose by 1.7% and settled at $30.84 per barrel. US crude oil prices fell due to the rise in refined products’ inventory. Brent crude oil prices rose due to short covering. It hit a five-month low on February 9 due to the global oil glut and fading OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC ties for a collective production cut. Oil tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) moved in the direction of oil prices. They fell by 2.7% and 4%, respectively, in yesterday’s trade. The SPDR S&P 500 ETF (SPY) also fell slightly in yesterday’s trade.

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US inventory 

The EIA (U.S. Energy Information Administration) released its weekly petroleum status report on February 10, 2016. It surprised crude oil traders. However, the rising refined products inventory dragged crude oil prices in yesterday’s trade. In the next part of this series, we’ll provide a detailed analysis of the US crude oil inventory. Crude oil prices fell for the fifth consecutive day. The fall in crude oil prices impacts US crude oil producers like CONSOL Energy (CNX), QEP Resources (QEP), Concho Resources (CXO), WPX Energy (WPX), and PDC Energy (PDCE).

Volatility in the oil and gas market also impacts ETFs and ETNs like the VelocityShares 3X Inverse Crude Oil ETN (DWTI) and the iShares U.S. Energy (IYE).

OPEC monthly report 

OPEC released its MOMR (Monthly Oil Market Report) on February 10, 2016. The report highlighted that the supply and demand gap in 2016 will average around 720, 000 bpd (barrels per day). Last month’s report projected that the supply and demand gap could average around 530,000 bpd in 2016. The consensus of a widening supply and demand gap will continue to put pressure on oil prices. Oil prices hit a 12-year low and lost more than 70% since June 2014 due to long-term oversupply. Lower oil prices and declining investments in oil and gas projects will lead to a fall in non-OPEC supplies, according to OPEC’s MOMR report. Non-OPEC supply is expected to decline by 700,000 bpd in 2016. It could support oil prices. However, scaling production from Iran will continue to put pressure on oil prices. The fading ties of a coordinated production cut from oil exporting giants also weighed on oil prices. Read Will Russia and OPEC Join Hands and Cut Crude Oil Production? to learn more.

In the next three parts of this series, we’ll discuss US crude oil, gasoline, and distillate inventories.


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