27 Jun

Brent-WTI Spread Fell 42% from a Multiyear High

WRITTEN BY Gordon Kristopher

Brent-WTI crude oil spread  

The Brent-WTI crude oil spread was at $6.65 per barrel on June 25—compared to $9.65 per barrel on June 18. The price difference between Brent and WTI oil futures is called the “Brent-WTI spread.”

The Brent-WTI spread narrowed due to the supply outage in Canada. In July, ~10% of Canada’s supply could drop due to an electricity outage, which shut down the Syncrude facility in Alberta. The facility can produce up to 360,000 bpd (barrels per day). The Syncrude facility is expected to be offline in July at least.

The outage is expected to restrict the crude oil coming to Cushing, Oklahoma. Genscape, a market intelligence company, estimates that Cushing crude oil inventories dropped by 2.2 MMbbls (million barrels) on June 15–22, which supported WTI prices. News from OPEC related to a supply increase pressured Brent crude oil.

Brent-WTI Spread Fell 42% from a Multiyear High

Brent-WTI crude oil spread  

The Brent-WTI spread hit $11.43 per barrel on June 7—the highest level since February 27, 2015. A high spread would usually spur US oil producers to export more oil. A wider spread also benefits US crude oil refiners like Phillips 66 (PSX), CVR Energy (CVI), and HollyFrontier (HFC).

When the Brent-WTI spread is wider, US refiners’ input costs are lower than their international peers. A wider spread means higher output prices because refined products are benchmarked to Brent prices. The combination benefits US refiners.

The Brent-WTI spread has fallen 42% since June 7. The narrowing Brent-WTI spread reduces US oil producers’ price disadvantage compared to their international peers. Some of the US oil producers are Pioneer Natural Resources (PXD) and Continental Resources (CLR).

Brent and US crude oil price drivers

Brent and WTI crude oil prices have risen ~66.7% and ~61% since June 21, 2017. Major oil producers’ supply cuts, expectations of new sanctions on Iran and Venezuelastrong demand, and supply outages have supported Brent and WTI oil prices. However, record US crude oil production has limited the upside for WTI oil prices.

Next, we’ll discuss the WTI Cushing-WTI Midland crude oil spread.

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