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Brent-WTI Spread Impacts US Oil Exports and Downstream Stocks

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Oct. 11 2020, Updated 12:24 p.m. ET

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.

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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.

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