uploads///WTI Brent spread

WTI-Brent Spread Widened as Brent Rose More than WTI Last Week


Apr. 11 2016, Updated 4:14 p.m. ET

US crude oil prices

NYMEX near-month WTI (West Texas Intermediate) crude oil futures prices rose in the week ending April 8, 2016. WTI crude oil prices closed at $39.7 per barrel on Friday, April 8, compared to $36.8 per barrel for the week ending April 1, 2016.

In comparison, Brent oil first-line futures prices rose 8.5% to $41.9 per barrel in the week ending April 8 from $38.7 at the end of the previous week. This resulted in a widening of the WTI-Brent spread.

Article continues below advertisement

Crude oil prices impact MLPs

US crude oil prices impact energy MLPs differently. While upstream companies are impacted directly by fluctuations in crude oil prices, the impact on midstream MLPs is more indirect. Some midstream companies derive part or all of their revenue from fee-based contracts.

A widening WTI-Brent spread tends to hurt upstream MLPs such as Memorial Production Partners (MEMP), Vanguard Natural Resources (VNR), EV Energy Partners (EVEP), and Atlas Resource Partners (ARP).

On the other hand, refining companies’ margins tend to rise as the spread increases. The above graph shows the weekly movements in crude oil futures prices over six weeks.

Energy outlook

In its Annual Energy Outlook 2015, the EIA (U.S. Energy Information Administration) predicted that US crude oil production would rise until 2020. Pipeline MLPs such as Shell Midstream Partners (SHLX) and Plains All American Pipeline (PAA) should benefit from this expected growth. Plains All American forms ~0.13% of the PowerShares Dividend Achievers Portfolio (PFM).

In its STEO (Short-Term Energy Outlook) report released on March 8, 2016, the EIA estimated that Brent oil prices would average $34.3 per barrel in 2016 and $40.1 per barrel in 2017. On average, WTI crude oil prices are expected to remain the same as Brent in both years. The STEO might concern MLPs with higher crude oil assumption in 2016.


More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.