Atlantic crude spreads may change for good

LONDON (Reuters) – North Sea Brent crude oil may never again trade at a long-term deep discount below U.S. light crude futures, even after the recession has passed and U.S. oil inventories have been drained to more normal levels.

Environmental and financial pressures are leading to a long-lasting decline in demand for gasoline, particularly in the United States, just as use of ethanol, diesel, aircraft fuel and light heating oil is increasing, and this is changing the type of crude oil that oil refineries need to buy.

Light sweet crudes such at West Texas Intermediate, the benchmark on the New York Mercantile Exchange (NYMEX), are slowly going out of favor, while heavier grades such as Brent, traded in London, are increasingly in demand.

The traditional large Atlantic premium for WTI over Brent, which has tended to average between $1.50 and $2.50 per barrel over the last decade, may not be re-established, analysts say.

“The spreads we were used to — with WTI at $2 or even more above Brent — are likely gradually to disappear,” said Sintje Diek, oil analyst at Germany’s HSH Nordbank in Hamburg.

“We could even get toward parity in future.”

Reuters