Brent-WTI Oil Price Spread at Highest Point Since 2014

Brent-WTI Oil Price Spread at Highest Point Since 2014
The price spread between Brent and West Texas Intermediate oil increased to a high of $13.26 per barrel on July 29.

The price spread between Brent and West Texas Intermediate (WTI) oil increased to a high of $13.26 per barrel on July 29, the highest price spread since January 14, 2014, the U.S. Energy Information Administration (EIA) highlighted in its latest short term energy outlook (STEO).

This wide Brent-WTI spread reflects supply and demand dynamics in Northwest Europe, according to the EIA, which outlined in the STEO that the difference had come down in the first few trading days of August but remained high.

“Russia’s full-scale invasion of Ukraine has resulted in shifting trade patterns, leaving Europe to find substitutes for Russia’s oil,” the EIA noted in the STEO.

“This change has driven up the price of Brent contracts to a level high enough to reduce Asia’s imports of Brent crude oil and to retain more oil in Europe. The Brent-WTI spread has also increased enough to attract more imports of crude oil from the United States into Europe,” the EIA added.

In the STEO, the EIA highlighted that, from March through July, the Brent-WTI spread averaged $6.05 per barrel, which it said was an almost $2.50 per barrel increase from the first two months of the year. The organization forecasted in the STEO that the Brent-WTI spread will average $6 per barrel in 2023, up $2 per barrel from the EIA’s July STEO forecast.

“This high spread will keep exports from Europe to Asia subdued and encourage higher imports from the United States, both of which will likely be necessary as the EU reduces crude oil imports from Russia by 90 percent by the end of the year,” the EIA stated in the August STEO.

“Although supply disruptions have kept crude oil prices around $100 per barrel, crude oil prices have come down slightly in July as concerns of slower economic growth or a recession become more prevalent,” the EIA added.

“These concerns are reflected in the University of Michigan’s survey of consumer sentiment, which recorded its lowest reading on record in June, with data going back to November 1952. Likewise, consumer sentiment in the Euro Area has decreased, reaching record lows in July,” the EIA continued.

In its August STEO, the EIA raised its Brent crude oil price forecast for 2022 and 2023 but lowered its WTI forecasts for the same period.

According to the August STEO, the EIA now sees Brent spot prices averaging $104.78 per barrel this year and $95.13 per barrel next year. The organization’s previous forecast saw Brent spot prices averaging $104.05 per barrel in 2022 and $93.75 per barrel in 2023.

As for WTI, the EIA now sees WTI spot prices averaging $98.71 per barrel this year and $89.13 per barrel next year. In its July STEO, the EIA saw WTI spot prices averaging $98.79 per barrel in 2022 and $89.75 per barrel in 2023.

The EIA warned that its August STEO is subject to heightened uncertainty “resulting from Russia’s full-scale invasion of Ukraine, how sanctions affect Russia’s oil production, the production decisions of OPEC+, the rate at which U.S. oil and natural gas production rises, and other contributing factors”.

To contact the author, email andreas.exarheas@rigzone.com


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