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Two largest oil price indices are set to deviations



Brent has gathered some speed, while the WTI prices have shown just a little tough.

The difference in price movements of the two oil brands reflects a small divergence in the fundamentals between the United States and the rest of the world. The US slate continues to grow at high speed, with production of 12.1 million barrels per day (mb / d), up nearly 600,000 bpd from October. The EIA recently revised its forecast for US production to 12.4 mb / dy year, up from the previous 12.1 mb / d expected in 2019.

Many US slate companies show signs of weakness, struggling to win and cut expenses in the face of investor pressure. But production growth continues, much of which is constantly being led by oil leaders. In the EIA's latest drilling productivity report, the agency expects the large US shale pools to add 84,000 bpd in March.

There is certainly a delay between large price movements and bank effects on rig numbers, drilling activity and finally production. So it may be the case that production growth slows down as the year is on. The figure has already been plateaued; A decrease in production is entirely possible in weeks and months to come.

But so far, the production figures continue to surprise, weighing down the oil market. Only this week, MER reported a surprising jump in crude oil stocks of 7 million barrels. Part of it was an anomaly due to a decline in imports after going last week. However, production continues to climb. Related: Supertanker prices Soar since US oil exports have been constantly rising

Meanwhile, the OPEC + cuts increase the oil market around the world. The group has taken over 1

.2 mb / d offline, and Saudi Arabia continues, with the aim of lowering production to 9.8 mb / d this month, or 0.5 mb / d below the required ceiling.

As a result, the market is well-fed in us, but tighter elsewhere. This has turned into a price cap between Brent and WTI, which has expanded to $ 10 a barrel, up from a range of $ 6 to $ 8 in January. The divergence in market conditions has also revealed itself in some bizarre trade movements.

In February, Bloomberg reported that a series of supertankers supply US oil to Asia, but then returns empty, carrying nothing but seawater for stability. The shoppers take great financial success by not bringing Middle Eastern oil back to the United States, for example, but the supply conditions for that route are tight while there are tons of barrels that have to go from the US to Asia. And these barrels are priced at the lower WTI reference level, so some arbitrage happens, with cheaper US oil heading east.

"What drives this is a US oil market that looks relatively bearish with domestic manufacturing estimates that are heading higher, and renewable crude oil builders we've seen in recent weeks," said Warren Patterson, head of trading strategy at ING Bank NV in Amsterdam, to Bloomberg in February. "At the same time, OPEC cuts support international characters such as Brent, creating an export incentive." "Brent continues to benefit from OPEC + production downturns and involuntary supply failures in Venezuela and Iran. An unexpected significant increase in US crude stocks failed to notice any noticeable pressure on the price, "Commerzbank wrote in a March 7 note." In fact, Brent climbed over $ 66 a barrel again overnight. WTI is a little behind and extends the price gap to just shy of $ 10 a barrel again. "

In particular, the price difference between WTI in Cushing and prices in Midland, Texas at the heart of Permian, has almost disappeared. Last year, Permian prices traded at a $ 20 discount per barrel at its widest point, due to pipeline issues. But the discount fell recently to zero, "thanks to the addition of the Sunrise pipeline in November 2018 and the announced conversion of the Seminole natural gas pipeline to carry raw at the end of February 2019," according to the Dallas Fed. [19659002] Higher volumes of US oil exports will also Smoothing out the differences between WTI and Brent More export capacity is planned for the Texas coast, but it will take time, meanwhile, increasing US shale production at a time when OPEC + keeps the supply of the market expanded the prices between the two oil brands.

By Nick Cunningham from Oilprice.com

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