The gap between West Texas Intermediate (WTI) and Brent crude, which was at about $20 a barrel a few years ago, has closed. In fact, WTI spot price closed higher than Brent on 15 December and 22 December (see chart). One reason for this is the potential for higher exports from the US.
The US Congress has approved the removal of the 40-year-old ban on crude oil exports and that has helped WTI close higher than the Brent, according to Madhavi Mehta of Kotak Commodity Services Ltd. “There was a supply glut situation at the delivery point of WTI and with the removal of the export ban, prices have got some support,” says Mehta.
It will be interesting to watch whether the premium will sustain for long. The expectation is that the lifting of the export ban will ease the supply glut.
Having said that, it is not necessary that the US will export a lot, considering that it is still a net importer, points out Mehta.
According to Energy Aspects Ltd, a research consultancy, exports will not be profitable at current prices. “We do not see US exports being economical at current WTI-Brent spreads and flat prices, with US output falling fast,” said Energy Aspects’ Outlook 2016 report.
In any case, it’s worth remembering that excess supplies and subdued demand in the global market do not make a strong case for higher exports from the US in the near future.
One thing is for sure, the bridging of the European benchmark Brent and US light sweet crude oil measure WTI leads one to believe the US economy is strengthening, winter demand is strong and oil inventories are rising at a slower pace in the US, said Vijay Bhambwani, chief executive of BSPLindia.com, a proprietary trading company. At the same time, the relative weakness in Brent indicates the European economy is not looking half as good as the US economy at the moment, Bhambwani added.