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Brent-WTI Spread Might Push US Exports to a New Record High

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Feb. 26 2019, Published 1:04 p.m. ET

Brent-WTI spread

On February 25, Brent crude oil April futures settled ~$9.3 higher than WTI crude oil April futures. On February 15, the spread was ~$10.3, but near its four-month high. 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 move higher.

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In the past five trading sessions, Brent crude oil April futures fell 2.2%—1.3 percentage points more than the fall in WTI or US crude oil April futures. In the last five trading sessions, the United States Brent Oil ETF (BNO) has fallen 2.2%—1 percentage point more than the fall in the United States Oil ETF (USO). BNO tracks Brent crude oil futures, while USO follows US crude oil futures.

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. When the US lifted the ban on US crude oil exports in December 2015, US crude oil production started rising. US crude oil production rose ~30.7% to ~12 MMbpd in the week ending on February 15.

In the same week, US crude oil exports rose by ~1.2 MMbpd to a record level of ~3.6 MMbpd. US crude oil exports rose by ~1.6 MMbpd year-over-year. If the Brent-WTI spread expands more, it might help US crude oil exports grow.

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 impact. However, US upstream stocks like ConocoPhillips (COP) might benefit from a higher Brent-WTI spread. Downstream stocks like Phillips 66 (PSX) and Valero Energy (VLO) are also sensitive to the Brent-WTI spread.

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