The U.S. government plans to sell the largest volume of oil in seven years from its strategic reserves at a time when domestic refiners are gearing up for seasonal maintenance and oil consumption historically drops. That’s weighing on West Texas Intermediate crude. Meanwhile, an improving demand outlook overseas is keeping Brent prices elevated, further contributing to the gap.
The U.S. strategic reserves sale comes at a time when domestic refineries are already scaling back operations earlier than normal with the delta variant starting to impact domestic demand. The spread weakness is a stark contrast from just a few months ago when the U.S. market was reaching a crunch point with fuel-making plants ramping up operations to meet strong summer demand.
The wider spread may reignite interest in WTI-linked U.S. crude overseas. Shipments have been shaky over the last few weeks with many regions responding to the fast-spreading delta variant by imposing various restrictions.
While buyers from Asia, the largest customers of U.S. oil, may seek out supply from the Strategic Petroleum Reserves offer, there will be some competition. Chinese and Indian governments have also been offering crude from their respective strategic stockpiles, the bulk of which are sour, to domestic refineries.
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