Buying Brent and selling WTI Crude oil is what will be discussed today. In the September contract this spread is currently trading with Brent carrying a $2.65 premium. Just one week ago we were trading even money in this spread. Every $1 move equates to a $1,000 gain/loss. I’m operating under the influence that we have turned a corner on this spread and moving forward I’m anticipating this spread to widen. My first objective from current trade would be the down sloping trend line…as identified on the chart below with a red line. After that level a 38.2% Fibonacci retracement carries the spread back over $6.
The chart below is September, traders wanting a bit more time can opt to establish positions in October…currently trading at about 15-20 cents narrower than September. My suggested course of action would be to trade September and be willing to roll in the coming weeks.
September Brent/ WTI Crude Oil Spread:
Brent WTI Crude Spread, July 29, 2013
To drill down a little and see the performance of the individual products I’ve included a chart of both Brent and WTI futures. You can see that most of the progress that contributed to the spread widening was a loss in WTI not a gain in Brent. I expect that pattern to continue and predict if the spread widens as I forecasted that the bulk of the move to occur in WTI. Since establishing an interim high on 7/19 WTI has traded lower by just over $4 ($4,000) as of this post. While September future of Brent which rolled over on the same day is lower by $1.66 ($1,660).
If the trade works exactly as planned which rarely happens I would be targeting a trade under $100 in WTI and $104/105 in Brent.
September Brent Crude Oil:
September Brent Crude oil futures, July 29, 2013
September WTI Crude Oil:
September WTI Futures, July 29, 2013
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.
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