Goldman Sachs Group Inc. (GS:US) recommended selling West Texas Intermediate crude and buying North Sea Brent contracts for December 2014 as supplies accumulate on the U.S. Gulf Coast.
The discount on WTI for delivery in December 2014 against the equivalent Brent contract has narrowed to $8.38 a barrel from $10.11 a month ago. The spread should widen as pipelines carrying crude out of the U.S. storage hub in Cushing, Oklahoma, cause a build-up on the Gulf Coast that would lower the price of WTI versus the European benchmark, Goldman said.
“If an oversupply of light, sweet crude in the U.S. Gulf coast becomes a problem as soon as third quarter 2013, it should be an even bigger problem in 2014,” analysts Jeffrey Currie and Stefan Wieler in New York said in a report today.
The discount on front-month WTI against Brent, at $8.44 a barrel today, is still set to narrow toward $5 in the third quarter as new pipeline capacity to move oil out of Cushing causes stockpiles there to decline “substantially,” Goldman said. Booming U.S. production expanded the discount on WTI to more than $28 a barrel in October, 2011.
Refinery maintenance and reduced pipeline flows are “putting a drag on a more meaningful decline of Cushing inventories,” according to the report. Supplies at Cushing increased by 0.9 percent to 50.2 million barrels in the week to May 17, according to the Energy Department.
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