\n\tIn recent months, that gap has been narrowing, and has now fallen below the US$5 mark. This is due to an uneven global economic recovery driven by a slow but steady improvement in the US outlook and the lack of slow but steady improvement in China and Europe.<\/p>\n
\n\tANZ<\/span> Bank predicts that demand for US crude will continue to rise as the US economy continues to recover. This is especially so after the latest batch of US economic data again surprised to the upside for the most part. As a result, the analysts believe the spread may even reverse in the short-term. They have set a target of West Texas US$0.50 above Brent.<\/p>\n \n\tWhile oil markets started to diverge from what were buoyant equity markets in April, ANZ<\/span> thinks the more traditional positive correlation will re-establish itself. The bank notes the 3-month rolling correlation between WTI<\/span> and the S&P500<\/span> has already lifted to positive 0.65 over the past few days. \n\t \n\tWere this trend to continue, the bank expects that a lift in US earnings in the 3Q<\/span>, once the current US recovery makes it to the manufacturing sector, would only serve to increase oil consumption. Although, ANZ<\/span> doesn’t see too much happening until domestic transportation bottlenecks are unwound on the back of increasing pipeline capacity.<\/p>\n \n\tThe Tulsa East refinery is expected to be back online soon. BP has a new a new 250kbbls<\/span>\/day crude oil distillation unit at Whiting, Indiana and there are a number of ramp ups ongoing at several new pipelines. As a result, ANZ<\/span> believes inventories at Cushing could be drawn down some in the coming months.<\/p>\n \n\tAnalysts at Macquarie also think that the congestion issue will be resolved, but by early as 4Q13<\/span>, noting the addition of 200kbls<\/span>\/day of higher refinery runs, the turning back of 300kbls<\/span>\/day of light-sweet imports and increasing flows on the Capline<\/span> system.<\/p>\n \n\tThus, the supply\/demand picture in the US is positive and is only expected to improve in the near term.<\/p>\n \n\tThe story for Brent is a different tale altogether. First, China is heading into what is a traditionally slow 3Q<\/span>, which means there’s a good chance China’s near-term growth performance could disappoint. Admittedly, the recent credit squeeze is starting to fade, but if liquidity is strangled off too severely, the risks to growth will be increasingly to the downside.<\/p>\n \n\tNorth Sea supplies are also expected to return to normal following maintenance, which will add to Brent supplies. Saudi Arabia is also pondering a lift in production in order to at least maintain market share, which should offset any supply issues from rising Middle East tensions. That being said, ANZ<\/span> does expect increasing geopolitical risk in the Middle East will actually support both oil markets.<\/p>\n \n\tMacquarie notes the Brent-WTI<\/span> spread averaged US$17.47 per barrel in 2012. The broker sees the spread averaging around US$5.00 per barrel through the first half of 2014.<\/p>\n \n\tA little further down the track, however, Macquarie predicts the increased flows from Capline<\/span> combined with another 18 months of production growth will replenish inventories and put a bit of downward pressure on WTI<\/span> prices versus Brent. The spread should widen back to the US$10 to US$12 per barrel range in early 2015, says Macquarie.<\/p>\n \n\t \n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n
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\n\tTechnical limitations<\/strong><\/p>\n