Brent/WTI spread widen as Brent trades sideways and WTI remains under pressure

Commodity Update, Crude Oil – 26 January 2015

Crude oil spreads widened last week as the death of Saudi Arabian King Abdullah gave fleeting hope to oil speculators in Europe, while a surge in crude oil inventories in the US pushed WTI crude close to new lows at $44.00 per barrel.

The previous week also saw repeated volleys of statements released from Saudi Ministers, first in the wake of King Abdullah’s death, then as a result of appearances at the Davos World Economic Forum.

In terms of the highlights, Saudi oil minister Abdalla El Badri spent much of last week attempting to convince the world that Saudi Arabia is not engaged in a deliberate stand off with the like of the US and Russia, while also refuting implied beliefs that Saudi Arabia should subsidise non-OPEC producers by cutting production.

This was before the same minister indicated at the open of the new week that he believes oil prices could rise to $200 in four to five years, if investment remains at current low levels for a sustained period.

Therefore, and on the whole, the Saudi line on oil prices remains that the nation will no longer subsidise the remainder of the producer universe. However, individual ministers such as El-Badri also appear to hold the view that oil prices are close to bottoming and could soon begin to rise, as was evidenced by additional comments made on Monday.

Whether such words are a genuine statement of belief, or a plea to speculators as part of an attempt to ease the current pain upon Saudi sovereign pockets, still remains to be seen. Although, it is worthy of note that prices, Brent prices in particular, have appeared resistant to further moves lower during the last 10 days.

While it is possible that prices could still move lower, we maintain our earlier call that we see $40 – $60 as a suitable price range for oil during 2015 and therefore, we do not see a sustained move below $40 as a likely outcome for the weeks and months ahead.

Brent/WTI // Hourly Intervals

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