Brent-WTI Oil Spread Shrinks to $5 for First Time in 2 1/2 Years

July 2, 2013 Leave a comment

Brent-WTI Oil Spread Shrinks to $5 for First Time in 2 1/2 Years

The difference between the world’s two most-traded crude oil grades shrank to less than $5 a barrel for the first time in about 2 1/2 years, underlining the easing of a supply bottleneck in the U.S.

North Sea Brent crude was $4.99 a barrel more than West Texas Intermediate today. It’s the first time the spread between the two grades has been at $5 or less since Jan. 18, 2011, on an intraday basis, according to data compiled by Bloomberg. WTI, the main U.S. crude grade, had been typically the more expensive grade until mid-2010.The drop in the gap between Brent, a gauge for more than half the world’s oil, and WTI shows how improved pipeline networks and the use of rail links have helped to unlock a glut at America’s oil-storage hub at Cushing, Oklahoma, in line with a prediction made by Goldman Sachs Group Inc. as long ago as February 2012. WTI rose 5.2 percent in the first half of this year, while Brent dropped by 8.1 percent as North Sea supplies have stabilized following oilfield maintenance.

“WTI is enjoying its return to market leadership,” Olivier Jakob, managing director at Petromatrix GmbH, an energy-research company in Zug, Switzerland, said in a June 25 report as the spread narrowed to less than $6.

Since the start of 2012, new and reversed pipelines have boosted capacity to Houston by almost 1.2 million barrels a day, with another 850,000 barrels a day coming online by the end of the year, according to data compiled by Bloomberg. The coming expansions include the Magellan Midstream Partners LP’s Longhorn pipeline, TransCanada Corp.’s southern leg of Keystone XL and Sunoco Logistics Partners LP’s Permian Express line.

Light Crude

“Even U.S. East Coast refineries, which historically have relied on Brent crude oil and Brent-like crudes, can now access U.S. light sweet crude oil,” the U.S. Energy Information Administration, a unit of the Energy Department, said in a report on June 28. “U.S. crude that moves by rail is replacing Brent crude oil and Brent-like crude oil imports into the U.S. East Coast, putting downward pressure on the price of Brent crude oil and narrowing the differential versus WTI crude oil.”

The WTI-Brent spread widened to a record of $28.08 a barrel on Oct. 14, 2011. It was $19.29 at the end of last year and averaged $16.04 since the start of 2011 through June 28 this year.

Goldman Sachs was for many months all but alone in predicting that the spread, one of the most-traded price relationships in energy markets, would decrease.

The bank reiterated its stance in subsequent reports, even as the differential widened to as much as $26 on Nov. 15. Goldman said recently, on May 10, that it expected the premium to drop to $5 a barrel in the third quarter.

North Sea crude production in July is set to rise to 1.94 million barrels a day, the most since April and 3.1 percent higher than a year earlier, as the main maintenance period for the region’s oil fields ended, according to loading program data compiled by Bloomberg.

To contact the reporters on this story: Rupert Rowling in London at rrowling@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

Filed under Innovation

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment