Is The Brent-WTI Spread About To Widen?

The recent rally in the price of oil has also resulted in a drop in the spread between Brent and WTI. Nonetheless, this spread is still up for the year and could start to pick up again if the price of Brent starts rising again at a faster pace than the price of WTI. Let’s review the latest developments in the oil market that could impact this spread, and the main companies that could benefit from a wider gap between Brent and WTI.

 

Looking forward, the Energy Information Administration estimates the spread between Brent and WTI will be, on a yearly average, $7 per barrel in 2015 and only $5 per barrel in 2016. These projections, however, don’t mean the spread could keep picking up in the near term. The recent developments in the Middle East, including the fighting in Yemen, have raised the concerns over potential shortage in supply — especially if the tensions in Yemen will threaten the shipments of oil via the Bab el-Mandeb Strait. This strait, according the EIA, had around 3.8 million bbl/day of crude oil and refined petroleum products flowing through this choke-point back in 2013. Once the uncertainty around the safety of the Bab el-Mandeb Strait dissipates, the price of Brent is likely to come back down and the spread to contract.

The rest of the report could be found in Seeking Alpha

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