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Brent-WTI Spread’s Relationship with Energy Stocks

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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.

On May 31, the Brent-WTI spread expanded to ~$10.99—the widest level since June 7, 2018. US downstream stocks account for 27.7% of the VanEck Vectors Oil Refiners ETF (CRAK). The higher Brent-WTI spread might benefit CRAK. Next week, the OPEC plus meeting will likely be important for US downstream stocks.

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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). ConocoPhillips has significant exposure outside the US. Pioneer Natural Resources (PXD) will likely benefit from the higher Brent-WTI spread. The company’s oil output follows stronger Brent crude oil prices.

Brent-WTI spread in 2019

On June 11, the EIA (U.S. Energy Information Administration) reported its Short-Term Energy Outlook report. Based on the report, the EIA expects US oil production to grow by 1.4 MMbpd (million barrels per day) and 0.9 MMbpd on a year-over-year basis in 2019 and 2020, respectively. The rise in US oil production could expand the Brent-WTI spread.

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