Rising Demand Closes The Gap Between WTI And Brent Prices
Rising oil demand in the United States and flat domestic production in recent months have boosted the price of the U.S. oil benchmark WTI Crude, which has significantly narrowed the discount to Brent Crude in recent weeks.
According to GasBuddy data, weekly U.S. gasoline demand for the week to June 13 rose for the fourth consecutive week to a new pandemic high, and was up by 0.8 percent from the prior week.
U.S. gasoline and distillates production is also rising, with gasoline production averaging 9.9 million barrels per day (bpd) in the week to June 11, compared with 9.4 million bpd a week earlier, the EIA said in this week’s inventory report. Production of middle distillates averaged 5.1 million bpd last week, compared with 4.9 million bpd a week earlier.
Refinery utilization rates jumped to 92.6 percent in the week to June 11, the highest since the start of the pandemic. This was higher than the four-week average of 89.9 percent. Refiners in the Midwest used capacity at 97.3 percent last week.
The recent strength in oil prices has been led by the U.S. benchmark, with the WTI discount to Brent quickly closing in on US$2 a barrel, compared to more than US$4 per barrel back in April, ING strategists Warren Patterson and Wenyu Yao said this week.
“Refinery runs in the US have picked up considerably, back to levels last seen in January 2020, while crude oil output continues to hover around the 11MMbbls/d mark,” they added.
WTI prices could even catch up with the price of Brent, although this is not the base-case scenario for RBC Capital Markets analyst Michael Tran, who told Bloomberg: “It’s a function of U.S. demand accelerating out of the gate.”
The narrowing of the spread, however, will likely result in lower U.S. crude oil exports going forward.
“The narrowing in the WTI/Brent spread suggests that we should see US crude oil exports trending lower,” ING said.
Early on Friday, WTI Crude was trading at $70.67 and Brent Crude at $72.57, down by around 0.5 percent, with the prompt spread at less than $2 a barrel.