Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Brent Crude Is Surging Past WTI in July 2026
Transcript
- Lucas: Let me start with one number: Brent crude, the global benchmark, settled tonight at $78.53 a barrel. That's up more than nine percent in just the last five trading days. Luna: And WTI, the US benchmark, is at $74.00 — up about seven and a half percent over the same stretch. So the gap is widening. Lucas: Right. The brent wti spread is now over four and a half dollars. That's the largest it's been in about two years. And that spread tells a really interesting story about what's happening in oil markets right now. Luna: So what's driving that divergence? Is it purely geopolitical, or is there a fundamental supply-demand story underneath? Lucas: It's both, but let's start with geopolitics, because it's the most visible catalyst. President Trump said today he's 'not sure' he wants a deal with Iran, even as the Strait of Hormuz situation gets more tense. That's a direct threat to global oil flows — about twenty percent of the world's oil passes through that strait. Luna: And Brent is the benchmark most exposed to that risk, because it prices crude from the North Sea, but it's really the global marker for seaborne crude. WTI is more landlocked, more tied to US production. Lucas: Exactly. So when there's a supply scare that threatens tanker routes, Brent jumps more. And that's exactly what we've seen this week. But there's also a domestic US story here that's keeping WTI relatively contained. Luna: US production has been ramping up again, right? The EIA data from last week showed production holding above thirteen million barrels a day. Lucas: Right. And US crude inventories have been building, or at least not drawing as aggressively as the market expected. That puts a ceiling on WTI. Meanwhile, OPEC+ is still holding production cuts in place, which tightens the global market that Brent represents. Luna: So Brent gets a double boost: OPEC+ constraints plus a geopolitical risk premium. WTI gets the domestic supply headwind. Lucas: That's the framework. And the spread matters for more than just traders. It affects which barrels get shipped where. When Brent is significantly more expensive than WTI, it becomes profitable for US exporters to send crude overseas. That rebalances global flows. Luna: It also affects refiner margins. Gulf Coast refiners that can process heavy crude benefit if they can buy WTI at a discount and sell products linked to Brent. Lucas: Right. And you can see that in the energy stock moves this week. The XLE, the energy sector ETF, is up more than five percent in five days. But it's not uniform. Exxon and Chevron are up three to six percent, but ConocoPhillips is up over seven percent, because it's more exposed to global pricing. Luna: You look at the headlines today — the Dow dropped over five hundred points on the Iran escalation, but energy was the one bright spot. Lucas: It's a classic risk-off rotation within sectors. Equities broadly sell off on geopolitical uncertainty, but energy becomes a hedge because oil prices rise. And if you're betting on that, you want the stocks with the most leverage to Brent. Luna: So where do you see the spread going from here? Is there room for it to widen further? Lucas: That depends on whether the Iran situation escalates or de-escalates. If we see a real confrontation in the Strait, Brent could spike to the mid-eighties while WTI might only get to the high seventies — a spread of six or seven dollars. Luna: But if a deal materializes, that premium could unwind fast. Lucas: And that's the tricky part. Trump's comment today suggests he's not in a rush to negotiate. But the Fed minutes also came out today, showing officials were split on the direction of rates. If we get a rate cut, that weakens the dollar, which is supportive for all commodities, including oil. Luna: Dollar weakness would lift both Brent and WTI, but probably Brent more, because it's more sensitive to global liquidity. Lucas: So the spread could stay wide for a while. And for investors, that means paying attention to which crude benchmark your holdings are tied to. Not all oil exposure is the same. Luna: It's also worth noting that the commodities rally this week isn't just oil. Corn is up nearly seven percent, soybeans up five, wheat up nearly three. Cotton surged over ten percent. So there's a broad-based move in commodities. Lucas: But oil is the one with the most immediate geopolitical catalyst. And the brent wti spread is the most informative signal within that trade. It's a distillation of global versus domestic risk. Luna: And for our listeners who follow energy markets, it's a reminder that not all crude is created equal. The benchmark you track matters. Lucas: Look, before we go deeper into the other commodity moves, I want to be honest about something. This show is ad-free, and it stays that way because a small number of listeners chip in monthly through buy me a coffee dot com slash fexingo. That's literally what funds making this many episodes. Luna: Yeah, it's a pretty simple model. No sponsors, no commercials — just people who find value in the show and want to keep it going. Lucas: If you've been following along and getting something out of it, that's the way to support. And it genuinely makes a difference. Luna: Alright, back to the markets. Lucas, you mentioned wheat and corn. What's going on there? Lucas: Sure. Wheat is up nearly three percent in the last five days, at 606 cents a bushel. But corn is up almost seven percent, at 454. Soybeans up five percent to 1188. That's a big divergence within grains. Luna: And that's partly weather-driven, right? The US corn belt has been dealing with some dry spots, while wheat harvest is progressing. Lucas: Exactly. Corn is in its critical pollination phase in July, and any stress on yields gets priced in immediately. Wheat is more about global supply — and we've had good crops from Russia and Ukraine despite the war. Luna: So corn is getting a weather premium that wheat doesn't have. Lucas: Right. And cotton, which we haven't talked about in a while, is surging past 80 cents — up ten and a half percent in five days. That's a big move for a soft commodity. Luna: What's driving cotton? Is it also weather, or demand? Lucas: It's a bit of both. US cotton production estimates have been trimmed due to dry conditions in Texas. And demand from Asian textile mills has been steady. So you get a supply squeeze with inelastic demand. Luna: And cotton is one of those commodities that doesn't get a lot of headlines, but when it moves, it moves. Lucas: It does. And it's a reminder that commodities are often driven by very specific, idiosyncratic factors. The macro backdrop matters, but so does the weather in West Texas. Luna: Let's talk about gold and silver for a second. Gold is at $4,092, down slightly on the week, and silver at $58.87, down nearly three percent. That's surprising given the geopolitical risk. Lucas: It is, but gold had a huge run already. It's up something like thirty percent year to date. So a little profit-taking or consolidation is natural. And the dollar has been firm despite the rate cut speculation, which caps gold. Luna: Silver's drop is more pronounced. That might be because it has more industrial demand exposure, and the growth outlook is uncertain. Lucas: Exactly. Silver is half monetary metal, half industrial metal. If markets worry about a slowdown, the industrial side drags it down. Gold is purely a store of value and a hedge. Luna: So the takeaway for commodities this week: oil is the standout, but within oil, Brent is the story. Grains are mixed with corn leading. Cotton is having a moment. And precious metals are taking a breather. Lucas: That's a good summary. And the common thread is that specific supply-side shocks — whether geopolitical or weather-related — are driving returns more than broad macro demand signals. Luna: Which makes it a challenging environment for passive commodity index investors, because the dispersion across commodities is huge. Lucas: It is. And that's where active understanding of these markets matters. Knowing that Brent and WTI are behaving differently, or that corn and wheat are decoupled, can help you make better decisions. Luna: Alright, Lucas. Good stuff. Let's leave it there for tonight. Lucas: Sounds good. We'll keep watching the brent wti spread and the Iran situation. Thanks for listening.