Brent-WTI Spread Impacts US Upstream Stocks


Nov. 20 2020, Updated 4:39 p.m. ET

Brent-WTI spread

On February 19, Brent crude oil April futures settled ~$10 higher than WTI crude oil April futures—near its four-month high. On February 12, the spread was ~$8.95. Lately, US sanctions on Venezuela’s oil exports impacted the spread. In 2018, Venezuela’s oil exports were 1.245 MMbpd (million barrel per day). Apart from Venezuela’s political crisis, a decline of 0.79 MMbpd in OPEC’s production in January on a month-over-month basis helped the spread expand.

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In the previous week, Brent crude oil April futures rose 6.5%—90 basis points more than the rise in WTI or US crude oil April futures. In the seven calendar days to February 19, the United States Brent Oil ETF (BNO) has risen 6.6%—1 percentage point more than the rise in the United States Oil ETF (USO). BNO tracks Brent crude oil futures, while USO follows US crude oil futures.

Brent-WTI spread and US upstream 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. For Permian Basin producers, like Concho Resources (CXO) and Cimarex Energy (XEC), the wider Brent-WTI spread has a negative impact on their earnings quality. They already suffer from the price differential of WTI at Cushing and Midland. However, for US upstream companies like ConocoPhillips (COP), that have significant exposure to upstream activities outside the US, an expansion in the spread would likely be beneficial. The rising demand for sour crude might impact Pioneer Natural Resources’ (PXD) oil exports. The current rise in the Brent-WTI spread is due to increased demand for sour crude.


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