uploads/2018/08/image008.gif

Brent-WTI Spread Impacts US Oil Exports and Downstream Stocks

By

Updated

Brent-WTI spread

On August 20, Brent crude oil October futures settled ~$6.79 higher than WTI crude oil October futures. On August 13, the spread was at ~$6.04.

On August 13–20, Brent crude oil October futures fell 0.6%. WTI or US crude oil October futures fell 1.7% during this period.

In the seven days ending on August 20, the United States Brent Oil ETF (BNO) fell 0.8% and the United States Oil ETF (USO) fell 1.8%. BNO tracks Brent crude oil futures, while USO follows US crude oil futures.

Article continues below advertisement

US crude oil exports

The above chart shows the broadly positive relationship between US crude oil exports and the Brent-WTI spread since December 2015. Exports seem to follow the Brent-WTI spread with a lag. The US lifted the ban on US crude oil exports in December 2015. Since then, US crude oil production has increased ~18.7% to ~10.9 MMbpd (million barrels per day) in the week ending on August 10.

In the week ending on August 10, US crude oil exports rose by ~0.7 MMbpd year-over-year. In the same week, US crude oil exports fell by ~0.26 MMbpd to ~1.6 MMbpd.

More expansion in the Brent-WTI spread could be a positive development for US crude oil exports in the coming weeks.

Brent-WTI spread and US energy companies

A widening Brent-WTI spread is good for US refiners and US oil exporters, but it’s a disadvantage for US oil producers selling in the US market. A narrowing spread has the opposite impact.

On July 20, the Brent-WTI spread fell to $2.61—the lowest level since July 31, 2017. On July 20–August 20, the Brent-WTI spread expanded by ~$4.2, while the VanEck Vectors Oil Refiners ETF (CRAK) rose 4.2%.

CRAK is made up of refining stocks. Phillips 66 (PSX) and Valero Energy (VLO), which account for ~16.5% of CRAK, have risen 5.2% and 6.8%, respectively, since July 20. Another expansion in the Brent-WTI spread could be favorable for US refining stocks in the days ahead.

Advertisement

More From Market Realist