Higher US Oil Exports: Has Iran Paved the Way?


Jul. 25 2019, Published 12:47 p.m. ET

On Wednesday, Brent crude oil active futures settled $7.3 higher than the WTI crude oil active futures—an important development for US oil exports. The spread was at $6.88 on July 17. On July 1, the spread fell to $5.97—the lowest level in almost in a year. Rising tension between Iran and the West could be behind the spike in the spread.

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ETFs’ performance

In the past five trading sessions, Brent crude oil September futures have fallen 1.8%—one percentage point less than the fall in WTI or US crude oil September futures. During this period, the United States Brent Oil ETF (BNO) has fallen 0.4%—one percentage point less than the rise in the United States Oil ETF (USO). BNO tracks Brent crude oil futures, while USO tracks US crude oil futures.

Factors that could impact US oil exports

There has been a positive relationship between US crude oil exports and the Brent-WTI spread since December 2015. Exports seem to follow the Brent-WTI spread with a lag. When the US lifted the ban on US crude oil exports in December 2015, US crude oil production started rising. From December 2015 to the week ending on July 19, US crude oil production rose approximately 23.1% to 11.3 MMbpd (million barrels per day).

For the week ending on July 19, US crude oil exports rose by approximately 0.8 MMbpd. US crude oil exports were at 3.3 MMbpd. US crude oil exports have risen by ~0.6 MMbpd year-over-year. With the higher spread, US crude oil exports might rise more in the coming weeks.

Brent-WTI spread and US upstream companies

The widening gap between Brent and WTI crude oil prices could benefit US crude oil exporters. The higher spread could help mitigate transportation costs and increase profits.

Usually, any rise in the Brent-WTI spread could mean lower domestic prices for US crude oil producers like Chesapeake Energy and Concho Resources compared to ConocoPhillips (COP). ConocoPhillips’s net income sensitivity with every $1 change in Brent/Alaskan North Slope crude oil prices per barrel is $150 million. The company’s same relationship with WTI crude oil is ~$30 million–$40 million. Pioneer Natural Resources (PXD) will likely be impacted by the lower Brent-WTI spread. The company’s oil output follows Brent crude oil prices.


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