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The Brent-WTI price gap is shrinking, raising US influence on global oil markets
The spread can have significant global implications for crude, extending all the way to the pump
The ever-narrowing price gap between the world’s twin crude oil benchmarks — Brent and West Texas Intermediate — has profound consequences across the supply chain for various stakeholders in the oil industry, including producers, refiners, traders and even consumers.
The futures prices of WTI and Brent oil over the past 13 years are heading much closer.
On June 30, 2011, Brent commanded a premium of $17.06 a barrel against WTI on futures exchanges. Fast forward to today, that premium has dwindled to a mere $3.14.
The narrowing gap is largely beneficial for US producers as they benefit from higher relative prices for WTI-priced crude, while European sellers of Brent-linked crudes may see reduced premiums.
However, the case is reversed for consumers.
“A wider spread often means lower prices for US consumers and higher prices for European consumers, while a narrower spread tends to align these prices more closely,” says Marc Pussard, head of risk at APM Capital.
Changes in the Brent-WTI spread can ultimately create major rifts that affect the prices of petrol and other refined products globally.
“This dynamic could influence production strategies and investment decisions in different oil-producing regions,” says Mohamed Hashad, chief market strategist at Noor Capital.
For example, a narrower spread means more challenges for oil producers who market Brent-linked crudes.
“Lower value added in Brent may leave less margin for producers based in regions such as the North Sea, Africa or even some parts of the Middle East, squeezing their profit margins,” says Mr Hashad.
