Why investors should pay close attention to the disappearing WTI-Brent spread

The average investor may not think too much about the price of oil spread between West Texas Intermediate (WTI) and Brent crude, which is usually just a few dollars per barrel – but the difference is really vital, and investors must understand each oil.

Fairly, the price of WTI should be higher than that of Brent, considering its sweet and light quality. All in all, WTI has an API gravity of 39.6 degrees and a sulfur content of 0.24%, while Brent has an API gravity of about 38 degrees and a sulfur content of about 0.40%. The lower the concentration, the easier it is to refine in petrol or diesel fuel. Conversely, high concentration, or “heavy” oil, makes it difficult to refine.

However, since 2013, Brent has become a more expensive crude blend due to its position as a good indicator of global oil standards and global oil prices. This is because Brent originates its oil from more than a dozen oil fields in the North Sea, while WTI originates from U.S. oil fields, including the main Cushing oil field. According to ICE Futures, ~ 60% of the world’s traded oil is out of Brent prices.

But a few days ago the crude classification was upset for a brief moment after WTI stole Brent’s crown as a more expensive oil.

On Tuesday, the WTI price traded above Brent at $ 115.4 / bbl vs. 115.2 / bbl, a discrepancy that experts say indicates how the market was disrupted by the epidemic and war in Ukraine before the summer rush. Weather.

This is a significant development in my opinionJeffrey Haley, senior market analyst at Onda, told clients on Tuesday.

Although Brent’s dominance has been restored, Brent traded at $ 107.2 vs. $ 106.5 for WTI in Thursday’s intraday session.

Russian oil embargo

According to Haley, the WTI has recently gained prominence in Europe’s move to impose a formal embargo on oil from Russia, pushing bloc countries into competition to secure supplies from other markets. At the same time, US refiners are trying to increase activity to meet demand, which is putting even more pressure on WTI.

U.S. Treasury Secretary Janet Yellen said Tuesday that the European Union could combine Russia’s oil import tariffs with a series of oil sanctions to curb Russia’s energy revenues. The goal of the tariff plan is to keep more Russian oil on the world market in order to limit price increases due to a complete embargo and to limit the amount of money that Russia can earn from exports. Treasury officials say that since Russian oil sells off to the global benchmark crude, a tariff could be set at a level that would both capture part of that gap and reduce Russia’s profits.

At present, Europe receives about 2.2 million barrels (bpd) per day, or half of Russia’s total crude oil and petroleum products exports, and 1.2 million bpd of petroleum products.

Yellen says he supports any plan that the 27-member EU can agree on, but “It is important to reduce their dependence on Russian oil. “ He pledged that the United States would help meet the energy needs of the bloc, including work to increase global supply of oil and gas.

By Alex Kimani for Oilprice.com

Read more from Oilprice.com:

Read this article at OilPrice.com

Leave a Reply

Your email address will not be published.