Brenda Shaffer, an energy specialist at Georgetown University’s School of Foreign Service, sees lower odds of a market share battle erupting between U.S. and OPEC producers. That is because the types of crude grades produced in the United States have a limited number of markets, she told CNBC’s “Closing Bell” on Tuesday.
As such, she sees the gap between U.S. West Texas Intermediate crude and international benchmark Brent crude widening, with Brent trading at a growing premium to WTI.
While the amount of U.S. crude in storage is rising and Saudi Arabia reported that it increased production last month, there are indications that oil prices will rebound beyond the short term, Shaffer said. Those include OPEC’s upward revision on Tuesday for global oil demand and moderating stockpiles outside the United States.
Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, said he too sees the so-called WTI-Brent spread widening. A lower WTI price should incentivize traders to sell more U.S. crude overseas, which would help draw down inventories, he told “Closing Bell.”
At the same time, the price of oil for delivery in 2018 and 2019 is falling relative to front-month crude prices, giving U.S. producers a reason to put fewer oil rigs to work drilling new wells, according to Blanch. That aligns with plans by top oil exporter Saudi Arabia under OPEC’s production cut agreement, he said.
“The last few days have been a little bit off … but I do think the objective hasn’t changed. They want to achieve higher spot prices, lower forward prices,” he said.
Now is an ideal time to achieve that goal because crude stockpiles in Europe and Asia have declined, he explained.
“We just need the U.S. inventory piles that we have to come down, and again, that requires a wider WTI-Brent spread,” Blanch said.
