Why WTI and Brent Crude Oil Prices Crossed Paths
WTI-Brent spread
WTI (West Texas Intermediate) crude oil’s discount over Brent crude oil widened in the week ending December 31, 2015, in comparison with the WTI-Brent spread on December 24. The differential as of Friday, December 31, was $0.21 per barrel. On December 24, it was -$0.24 per barrel.
WTI-Brent spread narrows
Crude oil prices started falling in mid-2014, as US shale oil producers, Russia, and OPEC produced more than what was being consumed. In its recent meeting held on December 4, 2015, OPEC agreed not to cut production levels to balance oil prices, as it wants to increase its market share. The IEA (International Energy Agency) estimates that the current supply is adding 0.5 MMbpd–2 MMbpd (million barrels per day) more than consumption levels, which has led crude oil prices to test decade-low levels.
Brent crude oil prices have been under pressure due to global oversupply. On the other hand, the removal of the 40-year-old export ban and tightening of US crude supplies pushed WTI crude oil prices to surpass Brent crude oil prices, which resulted in WTI trading at a premium over Brent crude oil prices.
However, at the end of last week, Brent crude oil prices rose more than WTI crude oil prices due to a greater-than-expected rise in US crude oil inventories and decreased production volumes of Brent oil as a result of the fierce storm in the North Sea. Thus, the WTI-Brent spread widened.
The wider WTI-Brent spread means WTI crude oil prices are lower than Brent crude oil prices. This translates to lower revenues for US crude oil producers such as Anadarko Petroleum (APC), ConocoPhillips (COP), Marathon Petroleum (MPC), and Occidental Petroleum (OXY).
Marathon Petroleum (MPC) makes up ~8.6% of the Energy Select Sector SPDR Fund (XLE).
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