Opec’s inability to tackle global crude stockpiles despite output cuts has seen prices slump in the second quarter of the year. But Opec cuts have fallen largely on sour, heavier grades. As the majority of output gains elsewhere have been of light sweet grades, sweet-sour differentials have tightened considerably. The predominance of sour grades within Opec is therefore somewhat mitigating the impact of price falls on the group’s revenues.
The Opec basket averaged $3/B less than Brent in 2016, but this discount more than halved to just $1.48/B in the first half of 2017. And the trend has shown no sign of halting so far, with the differential narrowing for the past five consecutive months to $1.21/B in June. This is not just the smallest differential since August 2014, but also the most consistent narrowing since early 2010 (see chart). (CONTINUED - 1084 WORDS)
