WTI price surge shuts arbitrage oil flows from US to Europe, Asia

19 Sep, 2023

SINGAPORE: A sudden surge in U.S. West Texas Intermediate crude prices that pulled Brent higher has shut off arbitrage routes for crude from the U.S. to Europe and Asia and is preventing oil from the Atlantic Basin from heading east, traders said.

The WTI price surge, driven by OPEC+ supply cuts led by Saudi Arabia and falling U.S. shale oil production, is altering global trade flows by keeping U.S. oil in the country and driving up demand and prices for other oil in Europe and Asia.

U.S. WTI crude futures jumped more than $1 a barrel on Tuesday, pulling up Brent as well and widened prompt month spreads for both contracts in backwardation.

The backwardation - where front-month prices are higher than those in future months - indicates tight supply.

Brent’s strength also widened its price spread to Middle East benchmark Dubai which hit a six-month high of $2.74 a barrel on Tuesday, LSEG data showed.

This was more than double from the previous day’s Asia close and prompted traders to cover short positions, the sources said.

“The arbitrage into Europe and Asia from the U.S. is now closed,” a Singapore-based trader said.

“I think it’s down to OPEC+ actions, they drained the U.S. by not sending oil there.”

Saudi Arabia and Russia this month extended a combined 1.3 million barrels per day (bpd) of supply cuts to the end of the year as part of a move by the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, to reduce supply and support prices.

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