CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Brent WTI Spread Disappears in Thin Air for now

Article By: ,  Financial Analyst
July 19, 2013 7:54 PM

For the first time in 3 years, the premium of Brent oil (North Sea) over West Texas Intermediate (US crude WTI) has fallen below zero. Despite an increase in both oil benchmarks, the more rapid rise in the price of WTI has dragged down the spread to $-0.54, for the first time since February 2010.

WTI’s underperformance relative to Brent occurring for most of 2012 was widely attributed to the glut of oil supplies in the continental US resulting from shale rock drilling and spare Canadian production, which overwhelmed refinery capacity.

But US oil inventories have hit 7-month lows of 367 million barrels last week as oil processing surged to 8-year highs. Since late May, rising demand from refineries, which have ramped up their processing of cheap crude oil from North Dakota and Canada as well as increased demand for oil derivatives products had began to erode pipeline and storage activity. Stocks at the oil hub of Cushing, Oklahoma, fell by nearly 2 million barrels in 4 days to 46 million barrels, the lowest level of the year.

Once the Brent-WTI spread soared to a record $15.95 earlier this year, there was a growing incentive to transport the oil from Cushing to the Gulf coast. Rail, truck and even pipeline reversals—all led to the narrowing of the spread. But according to estimates of marginal transportation costs out of Cushing, the Brent-WTI spread is expected to return towards the $5 level.

The aforementioned dynamics are seen to be largely temporary as they reflect the increase in WTI, rather than a decline in Brent. As refineries operate near 95% capacity, there is little additional oil they can take on, likely stepping up a fresh glut in the Gulf coast.  The Brent-WTI spread could well stabilise near -1.00 before mounting a gradual recovery in the medium term.

Both Brent and WTI are expected to continue outperforming metals and most commodities as OPEC and Mid East tensions maintain upward momentum in the fuel, while China’s cooling economy weighs on metals and iron ore demand.  Brent is set to retest $110.00 resistance, but renewed pressure is seen re-emerging at $116.0. $105.00 may well become the new medium term support, near the 100-week moving average.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024