What's up with the crude oil price

[dan_s]

WTI closed at $65.71/bbl on Friday and Brent closed at $76.61. I have NEVER seen the spread this wide. So, what's up?

Friday, June 1st 2018

Oil prices were a mixed bag this week, with Brent holding steady but WTI declining on higher U.S. output. The spread between the two benchmarks this wide is rare, and reflects uncertainty and confusion in the oil market, as well as regional differences in supply and demand.

U.S. tariffs threaten financial metarks. President Trump resumed this trade war this week, slapping steel and aluminum tariffs on Canada, Mexico and the EU and industrial tariffs on China. The decision comes after offering exemptions to U.S. trading partners in recent months, and comments from the Treasury Secretary just last week that the trade war would be “put on hold.” The about-face has spooked financial markets. As for oil, a trade war threatens to undermine demand, although the magnitude of the slowdown is hard to predict.

WTI blowout. WTI dropped to a more than $10-per-barrel discount to Brent this week, the widest spread in three years. The pipeline bottlenecks in the Permian are starting to bite. “This was inevitable. There was way too much production growth for infrastructure to handle,” Vikas Dwivedi, global oil and gas strategist at Macquarie, told Reuters. Meanwhile, the uncertainty surrounding the OPEC deal, plus geopolitical risk, has Brent looking for direction. “The market doesn’t know where the price of oil is going to be and probably doesn’t know where it should be, and so it’s open to some major price fluctuations,” Richard Hastings, an independent analyst, told Reuters. U.S. exports of crude are rising, while Brent-linked cargoes in the Atlantic Basin are struggling to find buyers.

Permian bottleneck crushes Midland oil prices. While WTI is trading at a steep discount to Brent, things are worse in the Permian. Oil in Midland is trading more than $20 per barrel below Brent. “This is probably just the start with more downside to come for the local Permian crude price in order to halt the ongoing booming production growth as there is nowhere to store the local surplus production and limited means to get it to market,” Bjarne Schieldrop, chief commodities analyst at SEB, said in a statement. Schieldrop predicts that U.S. shale will only grow by 1 million barrels per day over the coming year, or 0.5 mb/d less than previously expected.
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MY TAKE;
> Oil traders don't know what to make of the Trump "Trade War". Probably a way overblown reaction.
> Permian Basin differential: Only impacts companies that have pipeline capacity contracted. Also, basis differential hedges soften the blow.
> Big spread between Brent and WTI will increase exports of U.S. oil