Energy independence and the WTI/Brent spread

The above graph shows the WTI-Brent spread from 2009 onwards. Note that when the spread moves wider, it generally means U.S. crude oil producers receive less money for their oil compared with their counterparts that are producing internationally. Libya is close to re-opening four ports that were seized by rebels which will add supplies to Brent. We have recently gone over a support level of -$3.56 and based on this, I am looking for more upside coming.

The energy revolution in the United States has created two distinct positives. The first being that U.S. refineries now have access to cheaper crude oil than their overseas competitors, which provides them with highly attractive margins. Secondly, it has insulated the domestic oil market from disruptive geopolitical events like the situation in the Ukraine, to a certain extent. As the United States continues to export refined products, there will be an upside pressure on the WTI vs. Brent spread.

Overall, the increased production of U.S. crude has created and will continue to create new jobs and opportunities for U.S. businesses. This should also constitute an important economic trigger: for the first time in a long time, we have money coming in from the energy sector instead of it getting spent on energy imports.

North Dakota has the nation’s lowest unemployment rate at less than 3%. The reason for this is the fast growing hydraulic fracking industry. And if projections for increases in Texas oil output are correct, the state could soon surpass Kuwait, the UAE, Iraq, Iran and even Canada to move up in the international oil production rankings and become the world’s fifth largest oil producer. Will we see the WTI vs. Brent spread get back to zero? I would like to think so but only time will tell. 

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About the Author
Jack Malone

Jack Malone is a Futures and Options Advisor at RCM Asset Management with a focus on the metals and energy markets. Jack can be reached at jmalone@rcmam.com 


TRADING FUTURES, OPTIONS ON FUTURES AND RETAIL OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES. YOU MAY LOSE ALL OR MORE THAN YOUR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 


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