The jump in U.S. output, now almost 11 million barrels per day (bpd) from below 5 million bpd a decade ago, has upended the spread. Until 2010, U.S. crude mostly traded at a premium to Brent. But the growing availability of U.S. crude has meant that it has almost always been at a discount since then.
However, it is the big, sudden moves that tend to claim trade casualties, sometimes earning the moniker “widowmaker”.
Due to the Canadian outage, inventories last week at the Cushing delivery point for U.S. crude futures fell to their lowest since December 2014, U.S. data showed.
Volatility in the spread has been just one of several trading hazards that emerged in the first quarter of 2018.
Traders have also had to pay heavy premiums to exit U.S. storage leases as the oil price structure flipped to “backwardation”, when near-term prices are higher than those for later delivery, making it unprofitable to store crude.
Climbing U.S. output has put strains on the pipeline network, particularly in the Permian basin in Texas which has been the biggest contributor to the production surge.
A bottleneck that hit U.S. crude for delivery in Midland, Texas WTC-WTM caught BP off guard and led to losses when the discount to WTI shifted sharply during April to June, according to four market sources and one source close to BP.
In late April, the discount was close to $6 a barrel before widening to as much as $13 on May 4. This was followed by a sharp bounce back to around $5 in the second half of May followed by a similar see-saw move in June.
Three BP traders took the heat for losses related to the Midland rollercoaster. The source close to BP said one was sacked and two others were reshuffled internally.