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Brent-WTI Spread Impacts Downstream Companies

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Brent-WTI spread and downstream stocks

Any expansion in the Brent-WTI spread could benefit US refineries (CRAK) and cause their input costs to fall. US refiners’ output prices are benchmarked to stronger Brent prices. A narrowing spread has the opposite impact.

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On February 15, the Brent-WTI spread expanded to $10.66—the widest level since October 19. On February 15–April 15, the Brent-WTI spread fell by ~$3, while the VanEck Vectors Oil Refiners ETF (CRAK) fell 0.5%. Last week, gasoline prices outperformed oil prices—a positive factor for US downstream stocks.

Brent-WTI spread in 2019

On April 9, the U.S. Energy Information Administration reported its Short-Term Energy Outlook report. Based on the report, in the first half of 2019, the Brent-WTI spread will average $8. However, the spread will likely fall to $4 in the second half of 2019.

On April 8, Goldman Sachs wrote in a note that it expects Brent crude oil and US crude oil to average ~$66 and $59.50 per barrel, respectively, in 2019—up 5.6% and 7.2% from the last price forecast. Goldman Sachs increased its price forecast for WTI more than Brent crude oil futures—a concern for US downstream companies.

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