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 29, the Brent-WTI spread fell by ~$2.12, while the VanEck Vectors Oil Refiners ETF (CRAK) fell 1.2%. Last week, gasoline prices outperformed oil prices—a positive factor for US downstream stocks.
Brent-WTI spread and US upstream companies
The widening gap between Brent and WTI crude oil prices could benefit US crude oil exporters. Any rise in the spread could help mitigate transportation costs and increase profits.
However, a rise in the Brent-WTI spread could mean lower domestic prices for US crude oil producers like Chesapeake Energy (CHK) and Concho Resources (CXO) compared to their peers including ConocoPhillips (COP), which has significant exposure outside the US. Since the decline in the spread in mid-February, ConocoPhillips’ share prices avoided oil’s rise.
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.