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Here's The WTI/Brent-Spread Play

ByMatthew Bradbard
Published 10/11/2013, 12:19 PM
Updated 07/09/2023, 06:31 AM

In the last five weeks the WTI/Brent spread has widened $5.50 on the December spread moving from approximately - $3.00 to - $8.50. WTI remains at a discount and though I think that discount shall remain, I do expect the spread to come in moving forward. If you look at the individual oil products, WTI remains above $100/barrel -- which I view as a significant psychological level. December futures have come off 7.5% from their highs made 8/28 but I think most of the damage is done. The talking head speaking about weaker demand and a further $10 drop are mistaken in my opinion. In the last ten days Brent has recovered 50% of the drop futures experienced from late August perhaps getting ahead of itself. $100 appears to be the line in the sand in WTI while $106/107 appears to be that level in Brent.

My expectation is that money will be made on this trade on a drop in Brent while WTI should hold its own...maybe tick a bit higher. The IEA came out today warning that the US fiscal crises could harm demand and that supplies are rising faster than previously thought...could that already be factored in?
December Futures: Daily
December Futures: Hourly
My suggestion is to use the Fibonacci levels in the two charts above -- on the top daily chart, then on the hourly chart. On the daily I don't think we can get beyond a $10 discount, which would represent about $1400 loss per spread. I think there is $3-4,000 profit potential in this spread in the next 2-3 weeks.

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