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This Week in Petroleum

Release Date: August 10, 2022 Next Release Date: August 17, 2022

Shifting trade patterns contribute to widening crude oil price spreads

Global crude oil trade patterns have shifted since Russia’s full-scale invasion of Ukraine and have particularly affected countries in Europe. We expect that these shifts will continue as the European Union (EU) reduces crude oil imports from Russia, potentially by as much as 90% by the end of the year. As a result, we have updated our forecast for the spread between the Brent crude oil price and West Texas Intermediate (WTI) crude oil price in our August Short-Term Energy Outlook (STEO). Since March, the Brent-WTI crude oil price spread has averaged $6.73 per barrel (b), up from the 2021 average of $2.69/b. Although we forecast the spread to decline from the July 2022 average of $10.31/b to $6.00/b in 2023, this forecast still represents an increase from our July STEO forecast of $4.00/b for 2023 (Figure 1).

Figure 1. STEO monthly average Brent–WTI spread

Crude oil price spreads reflect several factors, such as:

  • The logistical cost of moving crude oil from a producing region to a destination
  • Planned or unplanned production outages
  • Local storage, distribution, or other infrastructure constraints
  • Changes in demand for certain grades of crude oil because of their quality and yield

Russia has historically accounted for a substantial volume of Europe’s imports of crude oil. As European refiners move business away from Russia, they need new sources of crude oil to maintain refinery utilization rates and fuel production. This need for new sources is contributing to higher crude oil prices in Europe to attract crude oil exports to the region. The Brent crude oil price serves as both the global crude oil price benchmark and the regional price benchmark for Europe’s crude oil. Because more crude oil is consumed in the European market than produced, Brent crude oil is often priced at a premium to other similar crude oil grades. Compared with other waterborne crude oils such as Dubai and WTI Houston, the Brent price increased significantly in late February, reflecting strong demand in Europe for crude oil imported from producing regions other than Russia (Figure 2).

Figure 2. Brent crude oil spot price minus select crude oil prices

According to our Petroleum Supply Monthly, U.S. crude oil exports to Europe averaged 1.59 million barrels per day (b/d) in April 2022, the most on record until May, when exports climbed even further to 1.65 million b/d (Figure 3). At the same time, U.S. crude oil exports to Asia and Oceania averaged 1.08 million b/d in April, the least in any April since 2018, before increasing to 1.34 million b/d in May. U.S. exports to Asia decreased because crude oil volumes were being diverted to Europe and because demand for crude oil imports dropped in China as several cities in the country, including Shanghai, entered strict mobility restrictions in response to outbreaks of COVID-19 in March and April.

Figure 3. U.S. exports of crude oil by destination

WTI crude oil serves as the regional benchmark that reflects the price of crude oil in the United States. The United States remains a net importer of crude oil, and most imports come via pipeline from Canada. As the United States has gradually reduced imports and increased exports of crude oil, particularly out of the U.S. Gulf Coast (PADD 3), WTI crude oil has shifted toward pricing at export parity. Typically, this trend translates into the crude oil being discounted to reflect the cost of shipping because it is priced on a free on board (FOB) basis. In contrast, when the United States was a significant importer of waterborne crude oil, the WTI price was higher to reflect the cost of shipping and piping the crude oil up the Gulf Coast and into the primary WTI storage and pricing hub at Cushing, Oklahoma. Since January 2017, the United States has exported increasing volumes of crude oil, primarily to East Asia where crude oil demand exceeds supply. The United States has also exported crude oil to Europe, and those exports have had to remain price competitive with barrels imported into Europe from other parts of the world, such as Russia or Africa, which are geographically closer. U.S. exports to Asia also face price competition with other Atlantic Basin producers, which is why prices of both WTI Cushing and WTI Houston crude oil developed a consistent discount to Brent crude oil.

In recent months, not only have U.S. crude oil exports to Europe increased, but less North Sea crude oil has shipped to China. This trend is due in part to a slight decline in China’s crude oil imports during the second quarter of 2022, compared with both the second quarter of 2021 and the first quarter of 2022. However, the origin of crude oil imports into China has also changed. Crude oil imports into China from countries outside the Atlantic Basin increased in the second quarter, whereas imports from countries in the Atlantic Basin decreased (Figure 4). China imported no crude oil from the United Kingdom in May and June, and imports in April were less than half the monthly average from the previous year. The relatively high Brent crude oil price is likely deterring China from importing crude oil from North Sea producers.

Figure 4. Imports of crude oil into China by origin

Although we now forecast that the differential between the Brent and WTI crude oil prices will remain higher than pre-2022 levels, we expect the outright prices for both crude oil grades to continue decreasing through the end of our forecast period.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.

Retail prices (dollars per gallon)

Conventional Regular Gasoline Prices Graph.
Retail Average Regular Gasoline Prices Graph.
  Retail prices Change from last
Gasoline 08/08/22 Week Year
U.S. 4.038 -0.154down 0.866up
East Coast 3.967 -0.127down-arrow 0.927up-arrow
Midwest 3.851 -0.185down-arrow 0.787up-arrow
Gulf Coast 3.535 -0.158down-arrow 0.705up-arrow
Rocky Mountain 4.353 -0.158down-arrow 0.681up-arrow
West Coast 4.999 -0.160down-arrow 1.063up-arrow
On-Highway Diesel Fuel Prices Graph.
Regional Average All-Types Diesel Fuel Prices Graph.
  Retail prices Change from last
Diesel 08/08/22 Week Year
U.S. 4.993 -0.145down-arrow 1.629up-arrow
East Coast 5.037 -0.144down-arrow 1.709up-arrow
Midwest 4.959 -0.149down-arrow 1.688up-arrow
Gulf Coast 4.677 -0.124down-arrow 1.594up-arrow
Rocky Mountain 5.040 -0.141down-arrow 1.365up-arrow
West Coast 5.630 -0.173down-arrow 1.621up-arrow

Futures prices (dollars per gallon*)

Crude Oil Futures Price Graph
RBOB Regular Gasoline Futures Price Graph
Heating Oil Futures Price Graph
  Futures prices Change from last
  08/05/22 Week Year
Crude oil 89.01 -9.61down 20.73up
Gasoline 2.856 -0.632down 0.599up
Heating oil 3.216 -0.409down 1.131up
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

U.S. Crude Oil Stocks Graph
U.S. Distillate Stocks Graph
U.S. Gasoline Stocks Graph
U.S. Propane Stocks Graph
  Stocks Change from last
  08/05/22 Week Year
Crude oil 432.0 5.5up -6.8down
Gasoline 220.3 -5.0down -7.2down
Distillate 111.5 2.2up -29.0down
Propane 65.664 2.050up 0.335up