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ICE Brent/WTI spread approaches $8/b, three-year high on oil production hike

Washington (Platts)--15 May 2018 1144 am EDT/1544 GMT


The ICE Brent/WTI spread was trading Tuesday at its widest level in three years, driven by a relentless climb in US production that has begun to limit the upside for NYMEX crude.

At 1455 GMT, the ICE Brent/WTI spread was 60 cents wider at $7.84/b. NYMEX June crude was 5 cents lower at $70.91/b, while ICE July Brent was 50 cents higher at $78.73/b.

The Energy Information Administration said Monday that US unconventional oil production is expected to rise 144,000 b/d in June to 7.178 million b/d.

That represents the biggest month-on-month increase since the EIA began publishing its monthly Drilling Productivity Report.

The Permian Basin located in West Texas and New Mexico should contribute the bulk of the growth, with output expected to rise by 78,000 b/d to 3.277 million b/d, according to the EIA.

Rising production in the Permian Basin also has led to pipeline constraints, creating large discounts for WTI Midland crude relative to Cushing, Oklahoma, and the Gulf Coast.

That glut has begun to weigh heavily on NYMEX crude, causing the ICE Brent/WTI spread to blow out Monday, reaching its widest level since May 2015.

"While outright prices have broken out to new highs, the discount of WTI to Brent has hit a new three-year low as US transportation infrastructure is once again having a hard time keeping pace with rapidly increasing production, while the rest of the world is worried about looming production cuts from Iran and Venezuela," TAC Energy said in a note.

Venezuela's production dropped 40,000 b/d to 1.44 million b/d in April, according to secondary sources, OPEC said Monday in its latest monthly report.

"The rapidly growing US shale oil production is currently helping to plug the supply gap to only a limited extent because pipeline bottlenecks are preventing some of the oil from reaching the refineries and export terminals on the US Gulf Coast," Commerzbank analysts said in a note.

"Once the pipeline problems have been resolved and supply is available again, this will have a dampening effect on prices," the note said.

At 1455 GMT, NYMEX June ULSD was 59 points higher at $2.2555/gal. NYMEX June RBOB was 1.11 cents higher at $2.2113/gal.

--Geoffrey Craig, geoffrey.craig@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com




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