HardAssetsInvestor

Written by Sumit Roy  |

October 17, 2012

WTI-Brent Price Spread Blows Out, But Seasonality Suggests It Could Fall Fast

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We take a look at the latest developments in the oil market, including charts of all the major inventory categories.

The Department of Energy reported this morning that in the week ending Oct. 12, U.S. crude oil inventories increased by 2.9 million barrels, gasoline inventories increased by 1.7 million barrels, distillate inventories decreased by 2.2 million barrels and total petroleum inventories decreased by 2.7 million barrels.

Crude oil prices were modestly lower after the release of the latest EIA inventory figures, but the big story in the oil market over the past week was the blowout of the WTI-Brent price spread. The differential between the two benchmarks reached a one-year high of $24.28 on Monday.

The familiar culprit for the widening of the spread is the persistent glut of crude at the NYMEX delivery point at Cushing, Okla., as well as the broader U.S. Midwest region. The EIA’s latest date showed that crude inventories in the Midwest rose counter-seasonally last week by 1.2 million barrels, putting them well above the levels of a year ago.

Many traders had anticipated that the Midwest glut would be diminishing by now after the reversal of the Seaway pipeline earlier this year, but instead, the opposite has occurred. That’s because U.S. crude production—particularly in the Midwest—has surged in recent months, overwhelming the increase in takeaway capacity.

Total U.S. crude production hit a new 17-year high last week above 6.6 million barrels per day.