Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Brent Crude Is Surging Past WTI in July 2026
Transcript
- Lucas: Welcome to episode 100 of The Commodities Economy. I'm Lucas. Luna: And I'm Luna. One hundred episodes — that is a lot of barrels of oil, bushels of grain, and ounces of gold. Lucas: It really is. And to mark the occasion, we are going deep on a market move that has been building for weeks but really snapped into focus this morning: the widening gap between Brent crude and West Texas Intermediate. Luna: I looked at the screens before we sat down. Brent this morning at $77.65, WTI at $73.26. That's a spread of over four dollars. Lucas: Right. And that is not just a blip. The brent wti spread has been compressing for most of the last two years as U.S. export infrastructure improved and global benchmarks converged. But in the last five days, Brent has surged nearly eight percent while WTI is up about seven. The gap is the widest it's been since late 2024. Luna: So what is driving Brent higher? Because both are crude oil, both are light sweet — though Brent is a blend of several North Sea grades. Lucas: Yeah, that's the key — they are not perfect substitutes. Brent is a waterborne crude priced in a global market. WTI is landlocked in Cushing, Oklahoma, and though it gets to the Gulf Coast via pipeline, it still reflects a more domestic supply-demand balance. Right now, the global market is pricing in a supply risk that the U.S. market is not feeling as acutely. Luna: And that risk is the Iran situation. We had fresh U.S. strikes against Iran overnight. The headline this morning on CNBC: 'Oil prices ease after spiking following fresh U.S. strikes against Iran.' Lucas: Exactly. The strikes hit Iranian military targets. And while they didn't directly take oil infrastructure offline — yet — the market immediately repriced the risk of a broader conflict that could choke the Strait of Hormuz. About twenty percent of the world's oil passes through that chokepoint. Brent is the benchmark that captures that risk. WTI, not so much. Luna: But it's not just geopolitics, right? There's a structural story here too. Lucas: There is. And it's about the kind of crude the world is thirsty for right now. Brent is a medium-sour crude — it has higher sulfur content than WTI. Refineries configured to run medium-sour barrels — especially in Europe and Asia — have been scrambling for supply ever since the EU banned Russian Urals crude. Brent has become the de facto replacement benchmark for those flows. WTI is ultra-light sweet, and while U.S. Gulf Coast refineries can run it, many global refiners can't without adjustments. Luna: So the price spread is not just about fear. It's about physical barrels. Lucas: Exactly. Physical barrels. And we saw this play out in the data this week. U.S. crude inventories drew by about four million barrels, according to the API, but that was in line with expectations. Meanwhile, global floating storage for medium-sour grades has been declining. Every tanker of medium-sour crude that gets booked is being snapped up at a premium. That pushes Brent higher. Luna: Let's talk about the refining angle for a second. If Brent is priced higher, does that mean diesel and jet fuel prices are going to spike more than gasoline? Lucas: Yes, and we're already seeing that. The diesel crack spread — the profit margin for turning crude into diesel — has widened significantly in the last week. European refineries rely heavily on medium-sour crude for diesel production. If Brent stays elevated, diesel prices at the pump in the U.S. and Europe will follow. Gasoline margins have been more stable because U.S. refineries can switch to lighter slates. Luna: I want to bring in another number from our live data. The S&P energy sector ETF, XLE, is up 5.3 percent in five days. The oil and gas exploration ETF, XOP, up 5.4. So the equity market is buying into this oil rally. Lucas: They are. And look at the individual names. ConocoPhillips up 7.3 percent in five days. Chevron up 6.2. Exxon up 3.6. Those are big moves for mega-cap energy stocks. The market is pricing in that higher oil prices are going to stick around for at least the next quarter or two. But it's interesting — XOM is lagging CVX and COP. That might be because Exxon has more exposure to Permian WTI barrels, while Chevron and Conoco have more international production linked to Brent. Luna: So the brent wti spread is actually informing stock selection. That is a great real-world application. Lucas: It is. If you believe the spread stays wide, you want companies with Brent-linked revenue. If you think it narrows, you want Permian pure plays. Luna: Speaking of staying power — this episode is episode 100, and it's completely ad-free. We keep it that way by listener support. Lucas: Yeah, that is the model. No ads, no sponsors, no interruptions. If walking through the economy with us has made something click for you, the simplest way to support that is at buy me a coffee dot com slash fexingo. Luna: And we mean it — every dollar goes to keeping this show independent. No pressure, but it does help. Lucas: Alright. Back to the oil market. Let's talk about what could make this spread narrow. Luna: What would it take? A diplomatic resolution with Iran? Or something more fundamental? Lucas: Both. A ceasefire or a nuclear deal would take the geopolitical premium out of Brent almost overnight. We saw that in late June when headlines about a potential truce sent oil down three dollars in a day. But structurally, the spread could also narrow if U.S. crude exports shift toward medium-sour grades. Luna: Is that happening? I know the U.S. produces mostly light sweet crude from the Permian and Bakken. Lucas: That's right. But there is a growing volume of medium-sour crude coming from the Gulf of Mexico and from some enhanced oil recovery projects in West Texas. It's still a small share — maybe 15 percent of total U.S. production — but it's increasing. And if those barrels get exported, they could compete with Brent directly. That would cap Brent's premium. Luna: But in the near term, the Iran situation is the dominant factor. And President Trump said yesterday he's 'not sure' he wants a deal. That ambiguity keeps the risk premium alive. Lucas: Exactly. And the market is now pricing in a non-zero probability of a supply disruption. The options market is showing elevated implied volatility for Brent calls at the $80 and $85 strikes. That's a bet that the spike has further to run. Luna: Let's not forget that the broader macro picture is also supportive for oil. The CPI data from May showed inflation ticking up — all urban consumers at 334, up from 332.41. That means the Fed is likely to hold rates steady. A weaker dollar, or at least a stable one, helps commodity prices. Lucas: Right. And the ten-year breakeven inflation rate is at 2.25 percent, basically flat. So the market doesn't expect inflation to run away, but it also doesn't expect a collapse. That's the soft landing scenario — moderate growth, moderate inflation — which is actually quite good for oil demand. Not booming, but not crashing either. Luna: So where do you see Brent heading in the next month? Is $80 the new ceiling or the floor? Lucas: I think $80 becomes the new ceiling unless we get a real supply outage. The fundamental supply-demand picture is balanced to slightly oversupplied outside of OPEC+ cuts. The geopolitical premium can add maybe three to five dollars, but it's fragile. If Iran talks resume, that premium evaporates. So I'd say Brent trades in a $72 to $80 range, with WTI in a $68 to $75 range. The spread stays wide as long as the Middle East stays hot. Luna: And WTI — is there any catalyst that could make it outperform Brent? Lucas: A sharp slowdown in U.S. shale production growth would help. We've seen some operators trimming budgets, but output is still rising. Or a major outage on a Gulf Coast pipeline. But those are unlikely. The more probable path is that WTI remains the discount crude until U.S. export capacity for medium-sour barrels expands. Luna: Or until the world stops worrying about Iran. But that doesn't feel like this summer. Lucas: No, it does not. And that is the uncomfortable reality. The oil market is back to being driven by geopolitics, not just by supply and demand curves. For this show, that means we will be watching the headlines as closely as the inventory reports. Luna: A hundred episodes in, and the story keeps changing. Thanks for being with us. Lucas: Here's to the next hundred. We'll see you next time.