U.S. - European Crude Margin Widens

October 9, 2012 08:04 AM

European and U.S. Crude prices have diverged dramatically since early 2011. Historically, the two have maintained a tight differential, but the spread between the two is the highest it has been since October 2011, currently around $22.00. The spread was below eleven dollars in June of this year but has steadily widened on robust U.S. supply.

"They're really in two different universes," said Andy Lebow, senior vice president of energy futures at Jefferies Bache in New York. "In terms of supply and demand," he said, "they're just two different markets."

The widening gap is a result of increased production output in the U.S., softening WTI crude prices and holding them in check. Brent crude from the North Sea is expected to fall off in the month of November by as much as 13% to 780,000 barrels per day. In addition, the World Bank cut its economic growth forecast for China, the No. 2 crude consumer globally, suppressing hopes for stronger demand in the near future.

EIA reported last week that U.S. crude output rose to its highest level week-over since 1996. Expect continued U.S. production to support the spread as Brent futures face pressure from declining delivery from the North Sea, driving Brent prices to the upside.

As of now (1:00 CT)...

Brent crude November contract (BZX12.NYM) up 2.38 on the day to 114.20.

WTI November crude (CLX12.NYM) up 2.84 today to 92.17 putting the spread at 22.03.


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