The Brent-WTI Spread is Mysteriously High

The two most widely traded oil benchmarks are West Texas Intermediate and Brent Crude. WTI is the benchmark for North American crude oil while Brent is the benchmark for Europe and the Middle East. The two grades are very close in quality, and historically have traded at very similar prices.

However, the spread between WTI and Brent started widening in 2017, and by early this year traders were largely united in suggesting that we’d reached a peak and it was time to become bearish on Brent. They were wrong:

The Brent-WTI spread did indeed start to narrow in March, but only for a short while. In May the spread took off like a rocket and currently stands at nearly 22 percent. This is a historical high aside from the period following the Arab Spring, when fears about Arab oil supply drove Brent prices well above WTI. Today, though, there’s nothing like the Arab Spring to explain what’s happening. There have been some vague notions floating around that Iran might try to close the Hormuz Strait, but nothing that seems very serious. And WTI inventories are up a bit, but not by enough to really explain anything.

So what’s going on? And does it mean anything serious?

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