Home >Market >Mark-to-market >Chart of the day | Spread between WTI and Brent at all time high

The spread between Brent crude and Western Texas Intermediate (WTI) touched an all-time high of $23 a barrel last week on the back of dwindling supply from West Asia and accelerating shale oil supply from the US.

A big change in the global oil map is expected because of the reduction of oil supply from Iran following the US sanctions, said analysts. Iran’s production fell by 50,000 barrels per day (bpd) to 2.8 million bpd (mbpd) in September (the lowest since 1988), against an average of 4.5 mbpd last year. Supply from member nations of the Organization of the Petroleum Exporting Countries, or OPEC, has taken a hit and is estimated to decline by 30,000 bpd in 2012, according to OPEC.

The spread between WTI and Brent crude also widened because of increasing production from the US. According to a Bloomberg report, oil investors have gained from the arbitrage opportunity between the two crude prices. WTI crude production from Cushing in Oklahoma, one of the biggest oil vaults, has shot up. As a result, investors bought oil at low cost from Cushing and sold at a higher price, just below the price of Brent, to refineries along the Gulf Coast.

The supply glut in the US can also be attributed to the shale oil boom. “A rise in oil production from US is purely driven by the shale oil activity at the Eagle Ford and Bakken shale plays which have reduced its reliance on its imports recently," said Nirmal Bang Commodities Pvt. Ltd, a brokerage, in a report dated 20 September. US oil supply is expected to grow by 730,000 bpd in 2012 to 9.74 mbpd, clocking the highest growth among non-OPEC countries, according to OPEC.

India’s import bill and inflation will continue to remain high, said Kunal Shah, head of research at Nirmal Bang Commodities. Moreover, the Spanish and Greek bailouts are expected to harden Brent prices further.

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