Market volatility from the Iran war is causing crude oil price differentials to significantly widen. The WTI-Brent spread has expanded from an average of $3.85/bbl (2021–25) to $8.79 in recent trading of May–December ‘26 futures. Disaggregating the move shows that most of the dislocation is occurring between the US Gulf Coast and Brent-linked global markets — not between Cushing and the Gulf Coast.
The spread from the Magellan East Houston (MEH) terminal to Brent has widened by $4.31/bbl, accounting for most of the move, while the Cushing–Houston spread has widened by just $0.65 (see table below). This indicates that the primary pressure point is at the export interface between the US and the global crude market, rather than inland US logistics.
The widening MEH-Brent spread reflects a deterioration in US export netbacks, as the delivered cost of Gulf Coast barrels into international demand centers has risen relative to Brent-linked supply. In effect, US crude is becoming less competitive on a delivered basis in global markets.
This divergence is being driven by a combination of:
- Tight seaborne supply: Disruptions from the Iran conflict have tightened the availability of non-US barrels, increasing the premium for Brent-linked grades.
- Crude quality mismatch: US production is heavily weighted toward light sweet crude, while many international refineries are optimized for slightly heavier, higher-yielding Brent-like barrels.
- Rising freight and logistics costs: Higher transportation costs increase the discount required for US barrels to clear in global markets.
Recent tanker market dynamics have materially increased the cost of moving crude from the Gulf Coast to key demand centers. Bookings for very large crude carriers (VLCCs) from the Gulf Coast to China have risen to ~$17MM per cargo, the highest since 2020. Meanwhile, VLCC day rates have surged to $300,000–400,000/day, driven by geopolitical disruptions and vessel availability constraints.
These increases translate to a multi-dollar-per-barrel rise in delivered costs, particularly for long-haul routes. As freight costs rise, the US export arbitrage compresses, forcing MEH to trade at a deeper discount to Brent in order to remain competitive in global markets.
This dynamic highlights that the current constraint is increasingly economic rather than physical: Export capacity exists, but the cost of clearing barrels into global markets has increased sharply.
Inland Logistics Tighten at the Margin
While secondary to the global dislocation, the Cushing–Houston spread is also showing signs of stress.
Available capacity on key pipelines such as Seaway and Marketlink is narrowing. East Daley Analytics’ Crude Hub Model indicates ~200 Mb/d of open capacity (see figure above). Continued production growth, combined with incremental flows – including volumes associated with Strategic Petroleum Reserve movements – are expected to further tighten utilization.
As a result, East Daley expects additional widening in the Cushing–Houston basis, exceeding current forward curve expectations. – Rob Wilson, CFA.
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