WTI and Brent Spread
The WTI and Brent Spread was trading in a very tight range of -5 to +5 range before the US shale boom. After 2010, the spread has become more erratic and we see the oil spread goes as high as -25 to a range of 0.
Before we get into the differences between Brent crude and West Texas Intermediate and how that will affect U.S. exports, we should start with politics.At its heart, the export ban is a form of regulation designed to protect Americans from the dangers of peak oil and price manipulation, as was seen when the ban was enacted in the wake of the oil embargo and crisis in the 1970s.But after 40 years without oil exports, the energy markets have completely changed...One of the main arguments for lifting the ban is that the United States now produces more oil than it has since the '80s and is on pace to produce more oil in the next few years than it ever has.And since Republicans won the Senate in the midterm elections in November, the likelihood of a wave of fossil fuel-friendly bills getting through Congress is high.At that point, it would be up to President Obama to sign those bills into law, which isn't as clear-cut as you may think.Sure, President Obama has enacted some climate-friendly policies to appease his voter base and campaign donors, but if you look at his less-publicized speeches, the President often touts America's energy prowess.So he very well could accept U.S. exports, as long as some of his other major priorities and limits are tied into the law. That, however, remains to be seen. (http://www.energyandcapital.com)
Is there any potential opportunities in WTI? At a current spread of about $13. It is low enough now? Comparing between the two, I will favour a pair trading to sell brent and buy WTI due to a decent spread differential. Investors that are bull in brent can also long BNO, a commoditiy ETF listed in NYSE as well.
Before we get into the differences between Brent crude and West Texas Intermediate and how that will affect U.S. exports, we should start with politics.At its heart, the export ban is a form of regulation designed to protect Americans from the dangers of peak oil and price manipulation, as was seen when the ban was enacted in the wake of the oil embargo and crisis in the 1970s.But after 40 years without oil exports, the energy markets have completely changed...One of the main arguments for lifting the ban is that the United States now produces more oil than it has since the '80s and is on pace to produce more oil in the next few years than it ever has.And since Republicans won the Senate in the midterm elections in November, the likelihood of a wave of fossil fuel-friendly bills getting through Congress is high.At that point, it would be up to President Obama to sign those bills into law, which isn't as clear-cut as you may think.Sure, President Obama has enacted some climate-friendly policies to appease his voter base and campaign donors, but if you look at his less-publicized speeches, the President often touts America's energy prowess.So he very well could accept U.S. exports, as long as some of his other major priorities and limits are tied into the law. That, however, remains to be seen. (http://www.energyandcapital.com)
Is there any potential opportunities in WTI? At a current spread of about $13. It is low enough now? Comparing between the two, I will favour a pair trading to sell brent and buy WTI due to a decent spread differential. Investors that are bull in brent can also long BNO, a commoditiy ETF listed in NYSE as well.
Comments
Post a Comment