Can Brent spreads be justified by fundamentals?

The spreads between the prices of Brent and other crude benchmarks such as WTI and Dubai have recently widened to levels which are hard to justify on the basis of underlying supply and demand. This may well be another example of how speculative pressures can drive commodity prices well away from levels that can be sustained by fundamentals. Nonetheless, we are more confident in our view that the prices of all three crudes will fall substantially by the end of the year, with a barrel of Brent back down to $95, than we are in our forecast that the Brent-WTI spread will narrow to $10. After all, the lessons from Canada suggest that the price of WTI could collapse to as low as $50.