Will the WTI-Brent differentials disappear?
The collapse in the price difference between the world's two most-traded crude oil grades is fulfilling a prediction Goldman Sachs Group Inc. has held for more than a year. Bank of America Corp. says it won't last.
Brent crude's premium to West Texas Intermediate slumped more than 50% to a 16-month low in the past two months, falling to less than $10 a barrel for the first time since January 2012. The differential narrowed to as little as $8.66 a barrel Thursday, after rising to a record $28.08 in October 2011. Brent was typically cheaper in the past decade, averaging $1.28 a barrel less than WTI, according to data compiled by Bloomberg.
The spread “has been extremely volatile, moving one way and then another,” said Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug, Switzerland. “The question remains of where is the equilibrium price.”
The divide between Brent, a gauge for more than half the world's oil, and WTI, the U.S. benchmark grade, has narrowed as North Sea supplies resumed following oilfield maintenance, while a switched pipeline began relieving a glut of crude at America's oil hub at Cushing, Oklahoma. Credit Suisse AG and Barclays Plc said in 2011 that the Cushing gridlock had made WTI so cheap relative to Brent, that the U.S. grade was losing its relevance as a global benchmark.
Eoin Treacy's view The wide spread between Brent Crude and
WTI has been a clear depiction of the USA's energy competitiveness over the
last few years but it fell precipitously over the last few weeks as WTI surged
from the lower side of its range.
WTI Crude is testing the psychological $100 level which has been an area of resistance for much of the last year. A sustained move above it would be required to question supply dominance in this area.
Brent Crude briefly dropped below $100 in April and has since rebounded. A sustained move below that area would be required to check potential for continued higher to lateral ranging.
The spread between Brent and WTI has steadied mostly above $7.50, which represents the upper side of the underlying base. Significant additional WTI strength would be required to check potential for some further expansion.