Goldman Changes Brent-WTI Recommendation on Weaker U.S. Output

Weaker-than-expected U.S. crude output reduces the risk that Brent oil’s premium to West Texas Intermediate will rebound, allowing investors to bet on a narrower spread for longer, according to Goldman Sachs Group.

Goldman recommends buying WTI futures for September delivery and selling Brent for the same month, revising its previous recommendation for a similar trade using June contracts, Stefan Wieler, an analyst at the bank in New York, said in a report e-mailed today.

Crude output in Texas and New Mexico has been weaker than expected over the past three months, reducing the risk that the Texas Gulf Coast will be “oversaturated” with light crude and depress WTI prices, according to Goldman. Crude inventories at Cushing, Oklahoma, the delivery point for New York-traded futures, will peak in late April or early May at about 53 million barrels, it said. The bank previously forecast that the Brent-WTI spread would reach its narrowest point in the third quarter before widening.

“We believe the slower than expected production growth greatly reduces this risk,” Wieler said in the report. “We believe that we remain on track for a significant change in the Cushing balance starting in late May that will lead to sharp inventory drawdowns, putting further pressure on WTI-Brent spreads to narrow.”

WTI for May delivery was at $93.54 a barrel, up 18 cents, in electronic trading on the New York Mercantile Exchange at 10:46 a.m. Singapore time today. Brent for May settlement rose 38 cents to $105.04 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark grade was at a premium of $11.50 to WTI futures. The spread ended the session at $11.30 yesterday, the narrowest gap since June 22.