The boom in crude exports & the increased relevance of Houston in the trading world reflect significant improvements in energy security. But it’s important to keep the changes in context: The U.S. still imports a large amount of crude oil.
The direction of hedge funds bets in the coming weeks and months will depend on a number of factors, including the U.S. rig count, the strength of the dollar, the Fed’s decision on whether to raise interest rates, and of course OPEC.
The spread between benchmarks Brent and WTI has widened recently, a reflection of a sharp increase in U.S. shale production this year at a time when OPEC is cutting back.
Over the past couple of years, there’s been a string of comments from executives and ministers who want and need higher prices making the case for a tighter market even though there’s little to no evidence of that reflected in the fundamentals.
Crude export deals so far have been “opportunistic” and isolated in nature and have gone to a wide variety of buyers. Cargoes will continue to trickle out, but a gusher won’t happen unless domestic production rebounds significantly.
The oil majors reported very dismal numbers for the first quarter, but earnings exceeded market expectations largely because of earnings from their downstream units: Refining operations have allowed the large integrated oil companies to weather low oil prices much better than upstream E&P companies.
Regulatory turf wars, disputes over the eligible crudes for physical delivery, and a sharp downturn in trading in a number of markets in the region have delayed the opening of China's crude benchmark.
Intercontinental Exchange's Brent and Gasoil futures have retained their roles as the world’s crude and refined oil benchmarks because they have evolved in line with the physical markets over the course of the last three decades.
China is poised to establish the world’s third crude futures benchmark, a logical step given the country’s growing importance in the oil markets and its determination to flex its economic muscle on a global scale.
WTI's discount to Brent has held steady as of late around $4-$5 per barrel, and remains around that level far out on both futures curves. But shifting dynamics in the U.S. market, mostly declining output and strong demand growth, are likely to lift WTI back to a premium over European marker Brent.