The discount between U.S. crude futures and Brent will be at its widest in four years in 2018, keeping the arbitrage window open for U.S. oil exports to Europe and Asia, energy consultancy Wood Mackenzie said on Jan. 30.
Rising production in the U.S. will widen Brent’s premium to U.S. crude to an average of $3.90 a barrel (bbl) this year, the widest annual figure since 2014, Joe Willis, senior analyst for Asia-Pacific refining, said.
The average price spread for 2014 was $5.80/bbl, according to the consultancy. In 2017, the spread average was $3.30/bbl, it said.
The U.S. is expected to grow its oil production by 840,000 barrels per day in 2018 with most of it coming online in the first half of the year, Willis said, in a briefing to reporters in Woodmac’s offices in Singapore.
“You’ve got an increase in U.S. crude supplies, you’ve got U.S. refiners who aren’t really changing their crude slates in terms of what they are processing themselves in 2018, so for those crudes to exit, they need to be priced effectively to be placed into the European and Asian markets,” he said.
As the wider price spread becomes normalized, Asia could also step up imports of U.S. light crude this year after U.S. medium grades dominated the flow in 2017, Willis said.
U.S. light crude supplies would help replace declining oil production in Southeast Asia and China, he said.
The light crude supply would also be welcomed in Asia after rising Brent prices caused European crude oil loadings for Asia to drop to their lowest in four years at the start of 2018.
Light oil demand in China, now the world’s top crude importer after overtaking the U.S. in 2017, has also risen after it switched to low-sulphur diesel fuel for industrial uses late last year.
In contrast, ample supplies of medium sour crudes from the Middle East and weaker fuel oil margins in Asia may slow imports of those grades from other producers and the U.S.
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