After few months of a narrowing Brent-WTI spread, the NYMEX prompt-month contract between the two benchmarks hit the negatives in July. On the New York Mercantile Exchange, Brent prompt month averaged around $102 USD/bbl, whereas WTI traded just above $103 USD/bbl this month.
For the first time in nearly three years, U.S. oil prices pulled back sharply in July as traders sold to lock in profits from a blistering rally that sent U.S. crude to a slight premium over its European counterpart.
According to the EIA, U.S. crude stocks have depleted some 3.6 million barrels over the past two reporting weeks to 46.08 million barrels. Infrastructure continues to play a key role in the shrinking spread as the pipeline capacities are set to expand further with new projects from West Texas to Houston moving ahead (Magellan’s Longhorn pipeline system and Sunoco’s Permian Express Phase 1).
On the other hand, Brent crude could garner support from a stronger demand as well as supply risks in the Middle East. A pledge by the Group of 20 nations has raised hopes of a recovery in the consumption of commodities and expansion of economic activities. This tight race between the two benchmarks will be something to watch in the month ahead.