The discount of West Texas Intermediate crude, the U.S. benchmark, to North Sea Brent will narrow to $7 a barrel from about $12 currently as U.S. refineries resume operations, Goldman Sachs Group Inc. said.
Brent futures surged to a two-year high of $108.70 a barrel yesterday as intensifying violence in Libya, holder of Africa’s largest crude reserves, heightened concern that supplies may be disrupted. It would take half of OPEC’s spare production capacity to replace Libya’s output, Goldman said in a research note today.
London’s Brent contract, normally cheaper than WTI, is about $12 more expensive than the U.S. benchmark as inventories at the nation’s storage hub in Cushing, Oklahoma, increase while nearby refiners conduct seasonal maintenance.
“The recent collapse has reflected a dislocation of the U.S. midcontinent from the world oil market,” analysts led by David Greely in New York wrote in the report. “We expect the WTI-Brent spread to continue to narrow to $7 a barrel in the near-term as the affected refineries were reportedly ramping back up as of the end of last week.”
Goldman predicts WTI’s discount versus Brent will be at $5.50 a barrel in five months, $4.50 in six months, and $3.50 in a year.
The bank reduced its projection of WTI prices over those time periods to $97.50, $100.50, and $103, while raising its Brent forecasts to $103, $105 and $106.50 a barrel.
Political unrest across North Africa and the Middle East may cause prices to exceed these targets, Goldman added. Libyan production will be about 1.6 million barrels a day this year, according to the bank.