Deepening Brent, OPEC oil price difference
Baku, Azerbaijan, Nov.6
By Khalid Kazimov - Trend:
The difference between Brent and OPEC's oil prices has deepened in recent months.
Currently, a barrel of Brent's crude oil stands at some US$48.47, while the figure for OPEC is about $43.28.
In contrast to this $5 per barrel difference, on January 5 and April 6, 2015, the difference was about $4, while it was more than $8 on November 6, 2014.
Responding to Trend's question on the oil price difference between OPEC and Brent and the widening gap over the last few months, Jonathan Leitch, a Director for Refining and Oil Product Markets Research at Wood Mackenzie, said, "There has been a general weakening of medium and heavy sour crude differentials over the last few months. There are several factors behind this, including the overall global crude slate, policies to maintain and increase market share, and the relative refined value of the crude.
"The global crude slate is starting to get heavier with the decline in US crude production and increasing OPEC output. OPEC crude tends to be heavier than the global average, and we have also recently seen a sizeable increase in production of Basrah Heavy crude from Iraq. Lower production of light sweet crude in the United States is helping to support the value of Brent, while increased heavy crude production is undermining the value of the OPEC basket."
According to OPEC's latest monthly report, the oil production level of 12 members reached 31.571 million barrels per day in September, while this volume for September 2014 was 30.474 million barrels per day.
Leitch said, "OPEC producers, in particular Saudi Arabia, are aiming to maintain or increase market share. As a result, Saudi crude price formulas have been increasingly aggressive to try to displace existing supplies. For example, Aramco is trying to displace some Urals exports into Europe. In order to do this, they need to make their crude more attractive by providing lower prices. Many other OPEC crude producers price in relation to Saudi crudes, so their prices follow Saudi's lower prices.
"There is also the issue of the relative value of the crudes to refiners. Generally, the heavier OPEC crudes have a higher yield of fuel oil than lighter crudes, such as Brent. Fuel oil crack spreads have been trending lower in recent months, and this has meant that refiners see less value in the heavier crudes and so need to lower price differentials in order to give them value from refining the grade," he stated.