WTI/Brent Spread -- Goldman Sachs

Platts is reporting:

Goldman Sachs said earlier this week it had closed its Brent/WTI spread trade recommendation after the ICE Brent premium to NYMEX crude fell below its target of $5/b, adding short-term scope for further narrowing remained, but pipeline and refinery economics are expected to see the spread push back out again.

At 1700 GMT Tuesday, the August ICE Brent contract traded at a $4.64/b premium to August NYMEX crude, having earlier narrowed to $4.53/b, the lowest level since January 18, 2011.

The spread had traded as wide as $28.07/b on October 14, 2011, and $23.44/b as recently as February 8 this year.

"It is important to note that while the narrowing of the spread likely happened in anticipation of the turn in the Cushing balance, inventories are still near record highs, as continued refinery turnarounds and weaker pipeline flows owing to both planned maintenance and repair works have held back a more meaningful decline in Cushing inventories since May," Goldman Sachs said in their Energy Weekly newsletter.

"This is now coming to an end with the return of the Tulsa East refinery, the start of the new 250,000 b/d sour CDU at Whiting, the Ozark pipeline returning from maintenance, the start of the Permian Express pipeline and the ramp up of the Longhorn pipeline, which are all due late June or early July," it said.

As a consequence, the Goldman Sachs analysts said they expect a sharp draw down in Cushing inventories in the coming months that, provided the US Gulf Coast does not become oversupplied with light crude oil, could result in an narrower spread.