Have US Oil Exports Maxed Out?



Brent-WTI spread

On December 10, Brent crude oil February futures settled at ~$8.97, higher than WTI crude oil January futures. On December 3, the spread was ~$8.74.

Between December 3 and December 10, Brent crude oil February futures fell 2.8%, 90 basis points lower than the fall in WTI or US crude oil January futures.

In the past five trading sessions, the United States Brent Oil ETF (BNO) has fallen 3.3%, 1.3 percentage points less than the fall in the United States Oil ETF (USO). BNO tracks Brent crude oil futures, while USO follows US crude oil futures.

Higher US crude oil production might be behind the underperformance of US crude oil compared to Brent crude oil.

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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. When the United States lifted the ban on US crude oil exports in December 2015, US crude oil production started rising. US crude oil production rose ~27.5% to ~11.7 MMbpd (million barrels per day) in the week that ended on November 30.

In the same week, US crude oil exports rose ~0.76 MMbpd to ~3.2 MMbpd—a record level. US crude oil exports rose ~1.8 MMbpd year-over-year. However, if the Brent-WTI spread contracts due to the possible slowdown in US crude oil production, US crude oil exports could fall.

Brent-WTI spread and US energy companies

While a widening Brent-WTI spread is good for US refiners and US oil exporters, it’s a disadvantage for US oil producers selling in the US market. A narrowing spread has the opposite effect. On October 19, the Brent-WTI spread expanded to $10.66, the widest level since June 8. Between October 19 and December 10, the Brent-WTI spread contracted ~$1.7, while the VanEck Vectors Oil Refiners ETF (CRAK) fell 12.1%.

Phillips 66 (PSX) and Valero Energy (VLO), which account for ~16.5% of CRAK, have fallen 13.6% and 20.9%, respectively, since October 19. Apart from the Brent-WTI spread, the contraction in the WTI-WCS (Western Canadian Select) spread may have also dragged on these downstream stocks. If the Brent-WTI spread moves lower, it could drag these US refining stocks down.


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