WTI in First Premium to Brent in 4 Yrs, Amid Hormuz Crisis


   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) - The crude oil market entered a rare and significant 
structural shift on Thursday (4/2), with West Texas Intermediate (WTI) futures 
trading at a premium to ICE Brent for the first time since 2022.

   Thursday's spread between both crude benchmarks stood at $3 bbl, compared to 
the $0.68 spread reached on May 20, 2022 -- the last time when the front-month 
in NYMEX WTI was at a premium to Brent, a month after Russia invaded Ukraine. 

   The inversion of the WTI-Brent spread coincided with fears of tightening 
domestic supply as U.S. President Donald Trump issued fresh escalation threats 
in the month-long war against Iran.

   After four years of trailing Brent, the shift in WTI reflects a desperate 
scramble for immediate barrels in the U.S. Gulf Coast as export demand reaches 
record levels. It reflects a "scarcity mindset" among refiners willing to pay a 
premium for prompt versus deferred crude with the Middle East's Strait of 
Hormuz closed to a fifth of world oil cargoes.

   By 09.30 a.m. ET, NYMEX WTI futures for May delivery were at $112.86 bbl 
while the ICE Brent contract for June stood at $109.09 bbl.

   The flip in the spread was driven by extreme backwardation, where prompt 
prices were significantly higher than those for future delivery.  May WTI 
front-month was about $10 bbl higher than June while June Brent was about $13 
bbl above July.

   "It's hard to see oil sustaining a move below $100 without a clearer 
timeline -- and more importantly, credibility -- around reopening Hormuz," 
Fawad Razaqdada, analyst at StoneX in London, said in a note. "Until then, dips 
are likely to be shallow in oil prices."

   WTI's move to a premium against Brent comes as U.S. refined product exports 
last week soared to the highest on record, Energy Information Administration 
data showed. International demand for U.S. petroleum products has picked up 
measurably as refiners and consumers worldwide scramble to replace shut-in 
Middle East supply and reduced Asian production.

   "The conflict in the Middle East has the potential to be the largest oil 
supply disruption in history if oil flows via the narrow Strait of Hormuz 
remain low or come to a halt," noted Karim Fawaz, director of global fuels and 
refining at S&P Global Commodity Insights.

   Fawaz observed that since the conflict began escalating on February 28, 
refined products markets have been upended, and the situation was evolving 
rapidly.

   "Flows through the Strait of Hormuz have ground to a halt, refineries and 
ports have been attacked, and crack spreads are rapidly closing in on highs 
last seen in the immediate aftermath of the start of the Russia-Ukraine 
conflict."

   In contrast to the present situation, the Brent-WTI spread widened 
significantly during the Russia-Ukraine conflict, hitting nearly $20 bbl. 
Europe was then abruptly cutting off from millions of barrels of Russian crude 
and vacuum gas oil. The phenomenon drove Brent -- the international benchmark 
-- to a huge premium as it absorbed the direct impact of the sanctions and 
rerouting costs.

    




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