The spread between two global oil benchmarks has finally vanished. It has taken almost two years until the spread stabilized.
Despite of the fact that oil is a fungible commodity, we clearly saw how significant regional differences can impact oil prices.
Today, when we see the oil price drop, the fundamental oil factors have significantly changed.
That’s the reason why the spread narrowed.
As can be seen from the picture below, “the normal situation” is when the spread is trading around zero level and sometimes WTI is traded with premium to Brent.
Of cause, this is easily explained because the quality of WTI is better than Brent.
The U.S. administration has given approval to export oil which is slowly eroding the export ban.
From my point of view, the ban on oil producers in the United States from exporting was a key factor to WTI oil price and its discount to Brent. Now, the situation is changing.
Oil exports from the U.S. are set to increase and more WTI crude will commingle with Brent on the world market. This is a major reason which makes Brent dropping at an even faster rate.
The weekly U.S. crude oil production chart shows highs last seen in 1986-1988.
Taking into account these fundamental key factors it is highly possible that the days of a large Brent/WTI spread are over.