With WTI crude oil prices hovering at record levels for this time of year…
…and the spread to Brent crude has bounced from zero as Syria started up to around $4.50.
At the time time we noted the plunge in the spread was as much related to US infrastructure and technical issues as the war premium and now Pierre Andurand, manager of one of this year’s most successful commodity hedge funds, believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market.
As The FT reports, the ex-Goldman trader is known for taking bold positions, and while not commenting in specific trades, he noted “In order for Cushing inventories to stop drawing and start building, I think WTI [the US benchmark] should be at a premium to Brent [the global benchmark].”
…the former Goldman Sachs oil trader believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market.
“In order for Cushing inventories to stop drawing and start building, I think WTI [the US benchmark] should be at a premium to Brent [the global benchmark].”
That view goes directly against indications in the futures market that US oil will continue trading at a discount of $3 to $4 per barrel for the rest of the year.
WTI had traded at a steep discount to Brent for several years as a glut of production from US shale oilfields weighed on US prices. But the discount narrowed sharply this year as pipelines opened to transport crude from storage tanks in Cushing, Oklahoma, to refineries around Houston.
Mr Andurand argues that Cushing, the delivery point for WTI, is now running short of oil, and that the US benchmark will need to trade at a premium to draw crude back into storage.
He estimates a minimum of 20m barrels is needed to prevent damage to the network of tanks and pipelines around the town, and believes that level could be reached within weeks. He also thinks very little of the oil left at Cushing is of the high quality stipulated in the WTI contract.