WTI is so much cheaper than Brent that OPEC oil tankers are stuck at sea

June 18, 2018 9:34 am

On the news that Russia and Saudi will be plugging supply gaps by Iran facing US sanctions, and Venezuela failing to deal with production challenges, oil prices are slumping.

Now a US-China trade war threatens to dump oil prices even further.

But as all of this happens, the price gap between US’s West Texas Intermediate and OPEC’s Brent is growing, making the latter harder to sell.

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Production fight

Bloomberg said that WTI Oil fell to near $64 a barrel as Saudi Arabia and Russia prepared for a clash with allied crude producers over whether to lift output and as China and the U.S. exchanged threats over trade.

Iran says Venezuela and Iraq will join in blocking a proposal to increase production that’s backed by Saudi Arabia and Russia when OPEC and its allies meet in Vienna this week.

“Three OPEC founders are going to stop it,” Iran’s representative to the bloc Hossein Kazempour Ardebili said in comments to Bloomberg on Sunday.

“If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement.”

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OPEC and its allies could consider a production increase of as much as 1.5 million barrels a day, Russian Energy Minister Alexander Novak said on Thursday. That would be enough to offset the supply losses from Venezuela and Iran foreseen by the International Energy Agency. Saudi Arabia has been discussing different scenarios that would raise production by between 500,000 and 1 million barrels a day, according to people familiar with the matter.

China said it would impose tariffs on a variety of U.S. goods, including crude and gasoline, in response to President Donald Trump’s levies on $50 billion of Chinese imports.

Crude has dropped more than 10% from its $80 high in May.

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Prices Slump

West Texas Intermediate crude for July delivery fell as much as $1.47 to $63.59 a barrel.

Brent futures for August settlement lost as much as 99 cents to $72.45, which is at a $9 premium a barrel to WTI.

Investors are looking ahead to a June 22 OPEC meeting in what could be the most contentious one  in recent years, aided by Chinese threats to add energy products as part of retaliatory move against US’s tariffs on $50bn of imported goods from China with the first wave of tariffs to cover $34 billion of goods and take effect July 6.

China issued its own list of product categories, covering about $34 billion in exports from the U.S., to be subject to an additional 25% tariff starting July 6.

“A second set of China’s duties to begin at a later date listed other goods including coal, crude oil, gasoline and medical equipment,” said Bloomberg.

“With unplanned outages escalating, geopolitical risks rising, and U.S. shale production facing infrastructure bottlenecks, Saudi Arabia is once again back in the driver’s seat exerting significant influence over the oil market in 2018,” Helima Croft, the global head of commodity strategy at RBC Capital Markets, said Thursday as reported by Oilprice.com

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Oil mixes with water

More crude oil is being stored on ships at sea in European waters than at any time in the past 18 months, according to Reuters, as reported by Oilprice.com

“A quarter of global floating storage is now located in European waters, compared to just 10% in March and April,” said Reuters.

“The sudden increase in oil stashed at sea is the result of Asian buyers scooping up cargoes from the U.S., rather than from Nigeria, Angola, and the Middle East. The premium for Brent relative to WTI has made U.S. oil cheap compared to oil linked to Brent.”


Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.