The Brent-WTI spread has widened to about $13 a barrel after Trump rejected Iran's ceasefire proposal and speculation grew over a possible US diesel export ban. WTI is now trading either side of $93.60 ahead of a scheduled 2:00pm ET announcement from Trump on Monday, with US diesel prices already at a record $6.53 a gallon.
Oil markets enter the new week pulled in opposite directions. Trump rejected Iran's ceasefire proposal, which could have reopened the Strait of Hormuz, giving crude bulls a tailwind. At the same time, speculation that Trump may announce a US diesel export ban is weighing on WTI, creating a volatile setup as the week begins.
Same spread, different drivers
That push and pull shows up in the Brent-WTI spread, which has widened to around $13 a barrel, close to the extremes seen earlier this year. The driver differs from March, though, when both contracts surged together on fears of a broad supply disruption. Since September 18, Brent is a little more than $2 higher while WTI is down around $7, widening the spread by more than $9 a barrel.
According to the analysis, if US refiners are restricted from exporting diesel, the incentive to process crude may diminish because there are fewer markets to sell into — pointing to potentially weaker refinery demand for WTI relative to Brent.
Diesel prices raise the political stakes
US highway diesel prices have surged to a record $6.53 a gallon, up almost $2, or 42.6%, since July 10. That has put political pressure on Trump and Republican members of Congress ahead of the November 3 midterm elections, given the hit to households and businesses across Middle America.
Trump's scheduled 2:00pm ET announcement from the Oval Office is therefore a key event risk. If it touches on diesel export restrictions, it could determine whether the pressure on WTI relative to Brent extends or unwinds.
Levels to watch as price action tightens
WTI is currently trading either side of $93.60, a level that has repeatedly acted as resistance and support over recent weeks and sits mid-way through the current coiling price action. The triangle's top side comes in near $94.65, with the lower side near $91.80.
On the topside, $96 is the first level in focus, having acted as resistance, support and then resistance again last week. Above that, $100 is the next level after price stalled there on September 18.
Underneath, a clean break of the rising trendline from the September 23 low would put $91 back in focus, followed by $88.50 and then $86. Oscillators remain neutral, putting the weight on price action and headline risk rather than a firm directional bias.
Over the medium and longer term, there is no shortage of crude globally, and an end to the conflict would likely create downside risk for both WTI and Brent.
Source: Commodities Analysis & Opinion
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