As is often the case, geo-politics is moving the oil price. The ongoing internecine conflict in Libya disrupting supply from the country and helping the Brent crude benchmark to 2019 highs above $70 per barrel.
The two main benchmarks in the crude oil market are West Texas Intermediate (WTI) and Brent. US oil is priced off WTI while the latter is the yardstick for crude sold in the rest of the world.
NEW SUPPLY ONSTREAM
And, while WTI is also rising, it trades at just $63.37 per barrel. The difference, or ‘spread’, between the two reflects the fact that the US has in recent years tapped into a major new source of supply.
US producers have successfully applied technology to exploit previously untapped oil contained within shale rock, while at the same time pressure on domestic pipeline infrastructure has led to supply gluts at major production hubs.
To put the current $7 differential between WTI and Brent in context, the spread moved above $20 per barrel in 2011 and hit a high of around $11 in 2018. Brent also briefly traded at a discount to WTI last year amid fears about global growth.
Broker Cantor Fitzgerald comments: ‘Concern remains over the pace of US output growth, after Baker Hughes reported that US drillers added 15 rigs.
‘This suggests that US stockpiles may well grow again this week, with infrastructure constraints appearing to be the only factor that may slow US production growth.’
The latest data on US oil inventories is scheduled to be announced on Wednesday (10 April).