News
Oil Curve Errs as U.S. Sales to Shrink Spread: Chart of the Day
The CHART OF THE DAY shows that the discount of West Texas Intermediate crude, the U.S. benchmark, to its European equivalent Brent will widen next year amid a glut of North American shale, according to forward prices on the ICE Futures Europe Exchange in London. That’s overlooking booming U.S. exports of refined products, soon to be joined by shipments of ultra-light oil called condensate, which will drive a sustained contraction of the spread, Germany’s second-biggest lender says.
Surging shale oil output in North Dakota and Texas propelled U.S. production to a 28-year high, while the country’s restriction on most crude exports caused a domestic surplus that made WTI cheaper than Brent. The discount has encouraged U.S. refiners to process the glut into fuels for sale overseas. Oil producers are also pressing for the ban on crude shipments to be lifted and some have secured approval to export condensate.
“U.S. oil production massively outperformed even the boldest forecasts, and U.S. exports of oil products and condensate are going to do the same,” Eugen Weinberg, Commerzbank’s head of commodities research, said by e-mail on Sept. 23. “Much of the new shale output will flow out as condensate. It’s difficult to get the genie back in the bottle once it’s released.”
U.S. exports of refined products and crude climbed to a record 3.62 million barrels a day last year, according to the Energy Information Administration, the Energy Department’s statistical arm. Enterprise Products Partners LP and Pioneer Natural Resources Co. won approval from the Commerce Department earlier this year to ship cargoes of condensate.
Brent’s premium to WTI, which has averaged $6.59 a barrel in the third quarter, will shrink to average $5 in the fourth quarter and $4 in 2015, Commerzbank estimates. The ICE and Nymex forward curves indicate an average spread of $9.41 a barrel next year.
Source:
