Brent-WTI spread and downstream stocks

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

How Brent-WTI Spread Is Affecting Oil Exports and Energy Stocks

On May 16, the Brent-WTI spread expanded to ~$9.8, the widest level since March 12. In fact, last week the VanEck Vectors Oil Refiners ETF (CRAK) rose 1.1% and outperformed energy subsector ETFs. 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. With the rise in the spread, ConocoPhillips’ stock prices moved higher last week. Before this, COP’s stock prices didn’t follow oil’s rise.

Brent-WTI spread in 2019

On May 7, the U.S. Energy Information Administration reported its Short-Term Energy Outlook report. Based on the report, OPEC production is likely to decline both in 2019 and 2020. Moreover, in this period, US oil supplies will likely rise. This factor might widen the Brent-WTI spread in the long term.

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