YOUR ENERGY

Brent & WTI: Will the twain ever meet? Brent and West Texas Intermediate spreads could widen even further as rising North American crude could push WTI to near US$50 per barrel over the next 18 to 24 months, according to Bank of America Merrill Lynch. “This is already the case in some parts of the Midwest, where soaring volumes and a lack of transportation options have left WTI crude oil trading at a US$20per-barrel discount to Brent,” said Francisco Blanch, analyst at BAML. “Given export restrictions, seaborne light sweet grades in the U.S. should also start to decouple from Brent in 2013.” Meanwhile, Brent is expected to trend higher and could touch US$140 per barrel this year as supplies fail to meet resurgent demand. Global central banks’ quantitative easing programs are stimulating the global economy, leading to greater demand for energy sources such as oil as Brent-linked crude supplies decline. “Since the global financial crisis erupted in 2008/09, the prices of Brent crude oil and other assets have broadly followed the U.S. Fed’s balance sheet,” Mr. Blanch said in a report. “Given our view that the Fed will keep rates at zero until 2015 and expand its balance sheet aggressively for two more years, we expect to see strong support to Brent crude oil prices.” As other central banks follow the Fed in maintaining a very aggressive monetary policy stance, the analyst expects Brent crude to rise in other currencies. “For example, the recent drop in USD-GBP coupled with the ramp-up in Brent crude oil has pushed GBP per barrel prices near record levels. Similarly, the sharp drop in the yen has made oil a lot more expensive for Japanese consumers.”