Brent And WTI Crude Oil: How To Trade A Narrowing Spread

U.S. oil exports are poised to reach the highest level in 28 years as deliveries to Canada more than triple, helping bring down the price of the global benchmark Brent crude relative to U.S. grades.

West Texas Intermediate oil’s discount to London’s Brent widened from the narrowest in almost nine months after Exxon Mobil Corp. shut a pipeline carrying crude from Illinois to the U.S. Gulf Coast. Exxon shut its 96,000 barrel-a-day Pegasus pipeline system on March 29 after a leak spilled heavy Canadian crude near the town of Mayflower, Arkansas.

Here I comment on some recent developments affecting the prices of WTI, Brent, and gasoline.

Emptyend recently mentioned an FT article which I had previously read, commenting on the disparity in the oil price for WTI crude and Brent. The price difference between the world’s top oil benchmarks reached an intraday record of more than $16 a barrel, doubling in three weeks, as West Texas Intermediate oil disconnects from top global oil references Brent and Dubai.

West Texas Intermediate crude rose after a U.S. government report showed that inventories declined at Cushing, Oklahoma, the delivery point for the contract. Futures climbed as much as 1% as the Energy Information Administration said that supplies at the storage hub dropped 652,000 barrels to 49.1 million in the week ended May 3. Nationwide stockpiles rose 230,000 barrels to 395.5 million, EIA data show.

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.

“I don’t see how it’s going to benefit consumers. I just don’t see it.” CALGARY — The Conservatives in Ottawa are staunch supporters, the New Democrats have called it a “win-win-win” and the premiers of Alberta and New Brunswick have loudly touted the benefits of an oil pipeline from west to east.

Goldman Sachs expects U.S. crude oil’s discount to international marker Brent to narrow to about $7.50 a barrel on average in the second quarter of 2013. U.S. crude oil, commonly known as West Texas Intermediate or WTI, has been pressured around its delivery point at Cushing, Oklahoma, by the rapid increase in shale oil production in the Bakken formation in North Dakota and at the Eagle Ford fields in Texas.