Bank of America energy analysts said they expect light-heavy crude oil differentials will widen in the second half of this year due to increased OPEC+ production of heavy oil and slowing growth in light U.S. shale oil output.

The bank said this week that prices of heavy oil grades since 2022 have compared to lighter grades on a surge in global crude distillation, coking and cracking refinery capacity.

The continued growth in light crude supply and strong demand for distillates and heavy oil products has narrowed the light-heavy crude spreads over the past several years, the bank said. In addition, the bank said recent Canadian wildfires that led to the shut-in of some producing fields also boosted the price of heavy crudes used by U.S. Gulf Coast refineries.

BofA said the relatively high price of heavy crude should encourage OPEC+ to return the group's idle barrels to the market.

The bank predicts the narrow light-heavy spread will widen sharply in the second half of the year, as Saudi Arabia and other OPEC+ members move quickly to boost supply. With U.S. shale oil production set to peak due to a falling rig count, BofA said the global crude mix will turn substantially heavier and more sour.

Heavy and sour crude grades have traditionally been cheaper than light sweet grades because heavier oils require additional processing by capital-intensive and sophisticated refineries like those in the U.S. Gulf Coast.

The bank said it expects the prices of light-grades Brent and West Texas Intermediate to exceed those for heavy OPEC+ barrels over the next year.

In addition, BofA said it expects the Brent term structure will likely to flip to contango from the current backwardation, as prompt prices are expected to weaken to near $60/bbl into the fourth quarter.

Backwardation is a market structure when prompt prices are higher than future deliveries and typically points to tight supply. In contrast, contango is a condition when future supplies are worth more than current ones and it is usually associated with oversupply.

The bank earlier this month said it expects an average crude oil contract price of $64/bbl in the second half of 2025 on a combination of higher OPEC+ production, increased global refining capacity and a slowdown in Chinese imports.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Frank Tang, ftang@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com

(END) Dow Jones Newswires

July 25, 2025 16:08 ET (20:08 GMT)

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