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Brent-WTI Spread Reacted Negatively to the Venezuela Crisis

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Brent-WTI spread

On February 4, Brent crude oil April futures settled ~$7.95 higher than WTI crude oil March futures. On January 28, the spread was ~$7.82. US sanctions on Venezuela’s oil exports didn’t impact the spread. In 2018, Venezuela’s oil exports were 1.245 million barrel per day. Apart from Venezuela’s political crisis, Saudi Arabia’s oil export to the US declined 54.4% in the week ending January 25 compared to the previous week. So far in February, the Brent-WTI spread has fallen 9.3% compared to January. The fall in the Brent-WTI spread might be due to traders expecting a slowdown in US crude oil production, which we discussed in Part 2 of this series.

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In the previous week, Brent crude oil April futures rose 4.5%—40 basis points less than the rise in WTI or US crude oil March futures. In the seven calendar days to February 4, the United States Brent Oil ETF (BNO) has risen 4.8%—20 basis points less 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 downstream 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. On October 19, the Brent-WTI spread expanded to $10.66—the widest level since June 8. On October 19–February 4, the Brent-WTI spread contracted by ~$2.75, while the VanEck Vectors Oil Refiners ETF (CRAK) fell 8.9%. Phillips 66 (PSX) and Valero Energy (VLO), which account for ~16.5% of CRAK, have fallen 7.8% and 8.6%, respectively, since October 19. Another contraction in the Brent-WTI spread might have a negative impact on these downstream stocks.

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