The smallest price gap between U.S. and European oil in 2 1/2 years probably will be short-lived because American stockpiles are too high, according to Brad Olsen, a Tudor Pickering Holt & Co. analyst.
The CHART OF THE DAY tracks the differential between West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on London’s ICE Futures Europe exchange in the top panel. Yesterday’s spread at settlement prices was $4.29 a barrel, the lowest since January 2011 and 78 percent narrower than at the start of the year.
Crude-oil inventories, as compiled by the Energy Department weekly, appear in the bottom panel. Stockpiles peaked in May at 397.6 million barrels, the most since 1931. Last week’s level came within 3.5 percent of the high.
“While market pricing is a powerful indicator, we find inventory data more compelling,” Olsen and Dave Pursell, a managing director at Tudor Pickering, wrote yesterday in a report. Their firm, based in Houston, is an investment and merchant bank specializing in energy.
Stockpiles at the delivery point for Nymex oil futures, Cushing, Oklahoma, are especially telling, their report said. Weekly inventories at Cushing averaged 50.2 million barrels in this year’s first half. The figure was 27 percent higher than in the same period of last year.
Oil refiners stand to benefit from a widening of the differential, which justifies buying their shares, Olsen and Pursell wrote. He reiterated Tudor Pickering’s buy ratings on Delek US Holdings Inc., Marathon Petroleum Corp., Phillips 66, Tesoro Corp. and Valero Energy Corp.