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Brent-WTI Spread Could Support Downstream Stocks and Oil Exports

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Dec. 4 2020, Updated 10:53 a.m. ET

Brent-WTI spread

On July 23, Brent crude oil September futures settled ~$5.17 higher than WTI crude oil September futures. On July 16, the spread was at ~$4.77.

Between July 16 and July 23, Brent crude oil September futures rose 1.7%. WTI or US crude oil September futures rose 1.2% during this period.

In the seven days that ended on July 23, the United States Brent Oil ETF (BNO) rose 2%, and the United States Oil ETF (USO) rose 1.1%. BNO tracks Brent crude oil futures, while USO follows US crude oil futures.

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US crude oil exports

The chart above 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 United States lifted a ban on US crude oil exports in December 2015. Since then, US crude oil production has increased ~19.8% to a record high of ~11 MMbpd (million barrels per day) in the week that ended on July 13.

US crude oil exports have risen ~0.73 MMbpd year-over-year. However, in the week that ended on July 13, US crude oil exports fell ~0.56 MMbpd to ~1.5 MMbpd—their third consecutive fall and the lowest level since the week that ended on April 6.

Any further upside 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 effect.

On July 20, the Brent-WTI spread fell to $2.61—its lowest level since July 31, 2017. Between July 20 and July 23, the Brent-WTI spread expanded by ~$2.56, while the VanEck Vectors Oil Refiners ETF (CRAK) rose 0.3%.

CRAK is made up of refining stocks. Phillips 66 (PSX) and Valero Energy (VLO), which account for ~16.5% of CRAK, have both risen 0.1% since July 20. An expansion in the Brent-WTI spread could be favorable for US refining stocks in the days ahead.

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