The spread between international oil benchmark Brent and its US counterpart West Texas Intermediate has grown to its widest level in two years, in a move some analysts have attributed to US refiners taking in less crude in the immediate aftermath of Hurricane Harvey.
Refiners in Europe, which primarily process oils linked to Brent, are also expected to run at higher rates to make up for the shortfall in US petrol and diesel supplies, helping Brent’s premium over WTI to reach $5.62 a barrel on Wednesday. The spread previously traded in a relatively narrow range of about $2-$3 a barrel for most of the past 18 months.
If this is the full story then the spread should quickly reverse as US refiners come back online and traders arbitrage away the spread by increasing exports of US crude to markets with stronger demand in the coming months.
But there are some reasons to doubt this is the case.
While short-term factors are exacerbating the move, the Brent-WTI spread was already blowing out when Harvey was but a wisp off the west African coast.
Traders have pointed to rising US oil production due to the shale boom and stronger than expected demand from refineries in the Atlantic basin in 2017 as two of the longer-term reasons the spread is growing.
The widening of the Brent-WTI spread has not been limited to those crude contracts that are coming up for delivery — the spread between contracts 12 months from now also almost doubled since May. That suggests Brent-WTI may stay a little wider for longer.
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