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ICE Brent/WTI spread approaches $8/b, three-year high on oil production hike

The ICE Brent/WTI spread was trading Tuesday at its widest level in threeyears, driven by a relentless climb in US production that has begun to limitthe upside for NYMEX crude.

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At 1455 GMT, the ICE Brent/WTI spread was 60 cents wider at $7.84/b.NYMEX June crude was 5 cents lower at $70.91/b, while ICE July Brent was 50cents higher at $78.73/b.

The Energy Information Administration said Monday that US unconventionaloil production is expected to rise 144,000 b/d in June to 7.178 million b/d.

That represents the biggest month-on-month increase since the EIA beganpublishing its monthly Drilling Productivity Report.

The Permian Basin located in West Texas and New Mexico should contributethe bulk of the growth, with output expected to rise by 78,000 b/d to 3.277million b/d, according to the EIA.

Rising production in the Permian Basin also has led to pipelineconstraints, creating large discounts for WTI Midland crude relative toCushing, Oklahoma, and the Gulf Coast.

That glut has begun to weigh heavily on NYMEX crude, causing the ICEBrent/WTI spread to blow out Monday, reaching its widest level since May 2015.

"While outright prices have broken out to new highs, the discount of WTIto Brent has hit a new three-year low as US transportation infrastructure isonce again having a hard time keeping pace with rapidly increasing production,while the rest of the world is worried about looming production cuts from Iranand Venezuela," TAC Energy said in a note.

Venezuela's production dropped 40,000 b/d to 1.44 million b/d in April,according to secondary sources, OPEC said Monday in its latest monthly report.

"The rapidly growing US shale oil production is currently helping to plugthe supply gap to only a limited extent because pipeline bottlenecks arepreventing some of the oil from reaching the refineries and export terminalson the US Gulf Coast," Commerzbank analysts said in a note.

"Once the pipeline problems have been resolved and supply is availableagain, this will have a dampening effect on prices," the note said.

At 1455 GMT, NYMEX June ULSD was 59 points higher at $2.2555/gal. NYMEXJune RBOB was 1.11 cents higher at $2.2113/gal.

--Geoffrey Craig, geoffrey.craig@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com