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. Last week, the VanEck Vectors Oil Refiners ETF (CRAK) rose 2.5%. US downstream stocks account for 27.7% of CRAK. Going forward, the higher Brent-WTI spread might help US downstream stocks rise.
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.
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’s production will likely decline in 2019 and 2020. During this period, US oil supplies will likely rise, which might widen the Brent-WTI spread in the long term.