WTI Crude Oil Surpasses Brent for First Time Since 2013Mark Shenk
U.S. oil became more expensive than global crude for the first time in 1 1/2 years amid signs that the nation’s crude exports are poised to increase.
West Texas Intermediate, the U.S. benchmark, briefly traded higher than Brent, the basis for European and African cargoes, today for the first time since July 2013. It averaged $6.64 less than Brent last year, and traded as much as $15.45 lower than its European counterpart on Jan. 13, 2014.
The 40-year-old ban on most U.S. crude exports is set to be loosened after Petroleos Mexicanos, Mexico’s state-owned oil company, asked to import 100,000 barrels a day of light crude. Senator Ted Cruz, a Texas Republican, plans to propose an amendment to a bill approving the Keystone XL pipeline that would lift the export restrictions.
“WTI is relatively strong because it looks like exports will be rising,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The Mexican request could be the first of many.”
U.S. refineries have operated at over 90 percent of capacity for the last two months, according to the Energy Information Administration. This activity has bolstered demand for domestic crude, John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said.
“Strong refinery utilization here is giving WTI support,”Kilduff said by phone. “Brent is tied to the oversupplied European market.”
Oil demand in Europe will average 13.42 million barrels a day this year, down from 13.47 million in 2014, the International Energy Agency forecast last month. Opinion polls showed Greek Prime Minister Antonis Samaras hasn’t narrowed the lead by his top opponent from the Syriza party, boosting concerns that a change in political leadership will spur an exit from the euro area.
“There are two key reasons for the rapid close of the Brent-WTI spread, with the first being the problems in Greece and Europe as a whole,” Thomas Finlon, the Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “The other is the increasing likelihood that the U.S. will allow a greater flow of crude exports.”
The greater decline of Brent, undercutting WTI, is a signal to Societe Generale SA that Saudi Arabia’s strategy of curbing growth in shale production is working. The kingdom is leading the Organization of Petroleum Exporting Countries in maintaining crude production amid a global surplus. The strategy is to curb output growth from shale formations and higher cost producers.
Refineries along the U.S. East Coast switch between using domestic and import crudes, often from West Africa, depending on cost. Imports have dropped as U.S. crude production expanded to 9.14 million barrels a day in the week ended Dec. 12, the most in weekly records that started in January 1983, Energy Information Administration data show.
“This is all about the trade flow and will send an economic signal that widens the spread again,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “East Coast refiners are going to switch to Nigerian crudes rather than ship those from the Bakken by rail. This will lead to higher Cushing stockpiles and further cut WTI prices.”
Crude inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 4.2 percent to 32.1 million barrels in the week ended Jan. 2, EIA data showed. The gain left supplies at the highest level since February.