The high Brent-WTI spread is encouraging U.S. oil exports to Asia and the biggest weekly U.S. rig gain since 2015 last week, all the while bullish comments out of OPEC and the Arab League may sustain a higher priced Brent until at least the OPEC meeting on November 30th.
U.S. crude oil exporters are absolutely blissful right now given how high the Brent-WTI spread has been as of late. As of Friday, Brent traded at a $6.78/bbl premium to WTI. This is incentivizing exports into Asia where Reuter’s vessel-tracking estimates that 19.7 million barrels of U.S. crude oil will arrive in November. This is more than a 50% increase from deliveries made in October to the region. Another sign that U.S. oil producers are happy as of last week’s report that rigs increased by 9 units to 738, the highest weekly rise since June 2015.
While the U.S. is capitalizing on these current export market conditions, it looks like they could be favorable for a prolonged period of time with recent rhetoric and conflict amongst OPEC nations. OPEC’s new monthly report estimates that the world will need 33.42 mbpd oil next year, up 360,000 bpd from its previous forecast. This increase in demand comes with news that OPEC’s October production fell 150,000 bpd to 32.59 mpbd from September’s output.
Egypt’s MENA state news agency reported that the Arab League is holding a meeting this upcoming Sunday over violations committed by Iran. The first issue is the missile fired by the Iranian-backed group of Houthis fighters towards the Riyadh airport in Saudi Arabia. The second is on Friday, a pipeline explosion in Bahrain stopped oil shipments from Saudi Arabia on a 230,000 barrel per day pipeline. Saudi Arabia denounced both as terrorism. Keep in mind Saudi Arabia’s future king Mohammed bin Salman is on a power trip since the major anti-corruption crackdown a week ago and may want to continue to force the country’s dominance in the region. This could result in a forced production cut on Iran, which would not be taken kindly by the Iranians and spark something further than just a war of words.
December WTI currently trades higher by $0.20 to $56.94/bbl, ULSD is higher by $0.0019 to $1.9368/gallon, and RBOB is lower on the day by $0.0050 to $1.8074/gallon.