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The Spread Between WTI and Brent Has Aligned with Transatlantic Freight Costs

Transatlantic Freight Costs

According to estimates by Argus, the cost of transporting U.S. crude from the Gulf Coast to Europe has been increasingly determining the discount at which the U.S. benchmark WTI trades relative to the North Sea crude benchmark Brent.

So far in September, the cost of shipping a U.S. crude cargo from the Gulf Coast to Europe has been nearly the same as the Brent-WTI spread. This month, a cargo of 700,000 barrels of WTI crude has cost $2.33 per barrel on average to transport from the U.S. Gulf Coast to Europe. This has been only a penny away from the average premium at which the second-month Brent futures contract on the ICE has traded over the NYMEX front-month WTI futures contract, Argus has estimated.

The Brent benchmark has seen downward pressure since WTI crude was included on June 1 in the Brent crude basket that underlies the world’s most traded benchmark contract. WTI Midland became the first non-European grade included in the basket, highlighting the change that the U.S. shale revolution brought about for the global oil market.

According to Argus after WTI Midland joined the Brent benchmark, Brent has seen downward pressure because WTI shipments to Europe are much higher than the combined loadings of the other crudes underpinning the North Sea benchmark.

Before WTI Midland was included in the Brent assessment, the underlying crudes in the benchmark were the local North Sea grades Brent, Forties, Oseberg, Ekofisk, and Troll.

Since WTI Midland was included in the Dated Brent assessment, analysts at Vortexa have observed a new trading pattern in U.S. crude exports to Europe.

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The Spread Between WTI and Brent Has Aligned with Transatlantic Freight Costs