Will US lift its ban on crude exports?

The spread or the difference between West Texas Intermediate (WTI) and the Brent has reached its lowest levels seen over the last year and a half years. WTI is the US benchmark for crude oil prices whereas the Brent is the global benchmark for nearly half of traded crude oil across the globe.

US crude benchmark or WTI traded higher than the European scale briefl y on January 14 for the fi rst time in over 18 months. The spread between the two global benchmarks has averaged at $6.50/bbl in 2014 while it stood at $10.29/bbl in the last fi ve years. There are two key reasons for the reducing differences between Brent-WTI spread.

First, the oversupplied European market is leading to a rapid decline in Brent as compared with WTI. Second, strong refi nery utilisation in the US is providing support to WTI.
According to EIA ( Energy Information Administration) data, the US refi neries have been running at over 90% utilization rate for the last two months.
A narrower gap will make imported crude attractive for US East Coast refi neries and will also reduce reliance on domestic crude.

The US crude imports have dropped after domestic production increased to 9.13 million barrels a day — the highest since 1983.

Analysts believe that the extent of fall in Brent prices shows that Saudi Arabia’s strategy to control shale production is starting to yield results. The move will put pressure on US to rethink its strategy regarding its ban on crude export introduced 40 years ago.