25 February 2016, London — U.S. crude’s discount to U.K.’s Brent, one of the biggest trades in oil, has hit a 10-week high as record high stockpiles pressure anew the market which traded at a premium to the global benchmark two months ago.
U.S. crude’s West Texas Intermediate (WTI) futures settled $2.26 a barrel lower versus Brent on Wednesday, after reaching an intraday discount as wide as $2.33, the largest since Dec. 14. The spread has widened three days in a row in Brent’s favor.
WTI had finished 3 cents above Brent on Dec. 22, the first time in more than five years, as traders furiously unwound bearish bets on U.S. crude futures after the government lifted a four-decade ban on domestic oil exports.
WTI’s outlook has deteriorated since as stockpiles of crude mounted across the United States, especially in Cushing, Oklahoma, the delivery point for the U.S. crude futures.
“The Brent trade remains surprisingly stout in continuing a sideways or consolidation phase that is approaching one month in duration,” said Jim Ritterbusch, president at Chicago-based oil markets advisory Ritterbusch & Associates.
“Since we have some difficulty constructing a fundamental argument for Brent price support, we are attributing most of the strengthening in Brent versus WTI to the continued build in U.S. crude supplies, particularly at Cushing.”
Some traders expected the differential to blow out from here as U.S. crude prices remained bogged down by inventories.
“I expect a $3 discount in WTI to Brent by next week, and that to possibly build to $5 or $6 in coming weeks or months,” said John Kilduff, partner at New York energy hedge fund Again Capital.
In Wednesday’s trade, Brent settled up more than 3 percent at $34.41 a barrel, partly due to shipment problems for UK’s North Sea crude.
Traders and industry sources said a supertanker chartered by oil trader Vitol to send North Sea Forties crude to South Korea was unable to load at Hound Point, a marine terminal in Scotland, owing to technical issues.
WTI settled up almost 1 percent at $32.15 a barrel as strong U.S. gasoline consumption data alleviated worries about mounting crude stockpiles. [EIA/S]
Crude inventories across the United States rose 3.5 million barrels last week to reach an all-time peak above 507 million barrels. In Cushing, stockpiles rose 333,000 barrels to 65.1 million, a fourth straight week of record highs.
Both Brent and WTI have slid from highs of more than $100 a barrel since mid-2014, pressured by oversupplies.
*Barani Krishnan; Editing – Nick Zieminski – Reuters