REUTERS – The WTI-Brent spread, measuring the price difference between the world’s two main crude oil benchmarks, is expected to narrow in the second half of this year, Goldman Sachs said in a note to clients on Tuesday.
The key spread has doubled from around $10 a barrel at the end of January to more than $20 a barrel in early April, with West Texas Intermediate (WTI) prices depressed by a rapid build up of inventories at Cushing, Oklahoma, delivery point for the main New York Mercantile Exchange crude oil contract.
Goldman said the scheduled reversal of the Seaway pipeline, expected to take place by June 1, would eventually force the spread back in.
“We continue to believe that the Seaway will alleviate the bottleneck between Cushing and the U.S. Gulf Coast,” Goldman’s energy analyst team, led by David Greely in New York, said.
“While we had expected the prompt WTI-Brent spread to narrow more quickly… we believe that a combination of factors have kept the WTI-Brent spreads wide in both the physical and forward markets, and we expect that the impact of most of these factors will dissipate with the opening of the Seaway pipeline.”
Goldman said the spread could narrow toward $5 a barrel by the end of the year, saying it would reflect the cost of “pipeline tariff economics”.
At 11:21 am EST (1521 GMT), the WTI-Brent spread had narrowed by about 70 cents to $19.52 a barrel, with Brent crude oil futures trading down $1.80 at $120.87 a barrel, while U.S. crude futures were trading down $1.10 at at $101.36 per barrel.
Goldman said it continued to recommend a long September 2012 WTI crude oil futures trading position, which it first launched on February 22.
The bank also said clients should maintain a short position in the May WTI contract against a long position in the June contract, as it sees WTI remaining under pressure ahead of the Seaway reversal.
(Reporting by NR Sethuraman in Bangalore, Editing by David Sheppard and Sofina Mirza-Reid)