The Spread Betting Blog: I am long brent crude – both the WTI and Brent crude products.
The reason? It just looks right. I would not usually be long on both, but circumstances have convinced me to do so. I have been long brent for a week now – targeting the not-unrealistic target of $115 a barrel.
If we get a half decent result from the Euro summit tonight we should see this target being realised.
Lets look at some of the reasons for taking a long spread betting position on WTI crude though. This is the interesting one.
Firstly, the bulls at Barclays Capital are practically besides themselves with joy now that WTI crude has decided to close the gap on brent.
Having followed Amrita Sen’s (Assistant Vice-President, Commodities Research) daily oil reports for a long while now I can tell you that her and the team have been stumped as to the reasons why WTI has lagged so far behind brent.
Recent moves in brent have prompted the following comments:
“What the narrowing of the spread does tell us is that, finally, after over a year, WTI is perhaps moving closer to being aligned with the world market and with other US crude grades, a move that was long warranted, with all those perceptions surrounding Cushing ultimately proving to be a red herring.”
The insight that did however convince me fully to get involved with WTI came from Bank of America Merrill Lynch who have today argued that the “stars are in alignment for a rally.”
The BofA commodities team writes:
“As stocks draw, we see scope for a WTI rally to $105/bbl In short, with WTI moving into backwardation, we believe the fundamentals are aligned for a WTI crude oil rally in the next weeks. This near-term rally, however, could end as rail transport cost parity is reached and trucking capacity is forced out of the market.
“As risk appetite returns on the back of a positive outcome in Europe, Brent crude oil could sustain gains towards $115/bbl.
“In turn, a stronger Brent market could further pave the way for a fundamental move in WTI crude oil prices to $105/bbl. Technical analysis provides a similar target for WTI crude oil over the next few weeks: $104.75/bbl. The stars, it seems, are aligned for a rally.”
Of course, all the above will be undone should the European leaders make a shambles of rescuing the euro.
But, nothing risked, nothing gained.
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