The Spread Between Brent And WTI Has Aligned With Transatlantic Freight Costs

By Charles Kennedy of OilPrice.com,

The cost of transporting U.S. crude from the Gulf Coast to Europe has been increasingly determining the discount at which the U.S. benchmark WTI trades relative to the North Sea crude benchmark Brent, according to estimates by Argus.

So far in September, the cost of shipping a U.S. crude cargo from the Gulf Coast to Europe has been nearly the same as the Brent-WTI spread.

This month, a cargo of 700,000 barrels of WTI crude has cost $2.33 per barrel on average to transport from the U.S. Gulf Coast to Europe. This has been only a penny away from the average premium at which the second-month Brent futures contract on the ICE has traded over the NYMEX front-month WTI futures contract, Argus has estimated.  

The Brent benchmark has seen downward pressure since WTI crude was included on June 1 in the Brent crude basket that underlies the world’s most traded benchmark contract.

WTI Midland became the first non-European grade included in the basket, highlighting the change that the U.S. shale revolution brought about for the global oil market.

After WTI Midland joined the Brent benchmark, Brent has seen downward pressure because WTI shipments to Europe are much higher than the combined loadings of the other crudes underpinning the North Sea benchmark, according to Argus.

Before WTI Midland was included in the Brent assessment, the underlying crudes in the benchmark were the local North Sea grades Brent, Forties, Oseberg, Ekofisk, and Troll.

Since WTI Midland was included in the Dated Brent assessment, analysts at Vortexa have observed a new trading pattern in U.S. crude exports to Europe.

Vortexa has observed “a significant increase in crude exports, especially to Europe, in the second half of the month compared to the first half of the month,” Rohit Rathod, Senior Oil Market Analyst at Vortexa, wrote in a note earlier this month.

“A potential reason is that the WTI trading window rolls into the next trading window around the 20th of each month, while the expiry of the Brent contract happens towards the end of the month,” Rathod added.