WTI-Brent Differentials to Widen Amid Higher Oil Tanker Rates, Says Goldman Sachs
According to analysts at Goldman Sachs, the discount of West Texas Intermediate (WTI) crude to Brent crude is expected to increase in the next two years due to higher oil tanker freight rates. The investment bank predicts that the Brent-WTI differentials will average $5.30 per barrel in both 2021 and 2025, exceeding its previous estimate of $4.50 to $4.60 per barrel.
WTI serves as the benchmark for crude oil in North America, while Brent is the benchmark price for Europe, Africa, the Middle East, and Asia. The price differences between these two benchmarks often reflect variations in supply and demand dynamics.
Goldman Sachs cites locational factors as the reason behind the decision to widen the Brent-WTI spread. Specifically, militant attacks on ships in the Bab-El-Mandeb Strait, a significant chokepoint for oil supply in the Red Sea, have contributed to this shift.
The bank states that disruptions in the Red Sea oil flows reinforce a structural bull market for oil tankers. As vessels are forced to take longer journeys around the Cape of Good Hope, the demand for tankers increases, leading to wider regional spreads.
Additionally, Goldman Sachs expects the discount of West Canadian Select (WCS) crude to WTI to widen to $16 per barrel, up from their previous estimate of a $15 per barrel difference. This projection is attributed to the potential resurgence of pipeline constraints in Canada, which could result in increased transportation costs for WCS to reach markets.
Enbridge, a major Canadian pipeline company, recently announced that its Mainline crude pipeline from Edmonton, Alberta, to the U.S. Midwest will remain at full capacity for the foreseeable future. This pipeline is a primary source of feedstock for refineries in the U.S. midcontinent and allows for exports to the U.S. Gulf Coast.
Furthermore, the expected startup of the Trans Mountain Pipeline, an expansion project aimed at providing access to Asian markets, has been delayed from the first quarter to the second quarter of this year.
Reporting by Frank Tang, Editing by Jeff Barber
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