Traders are speculating whether geopolitical tensions in the Middle East will imply a widening spread as Brent typically reacts to news in that area quicker than WTI. Others believe that the spread is too wide and that in the mid-long term the two grades will converge.
This morning the spread was trading at -$17.35 (WTI Price-Brent Price) and currently trending wider. Last fall, many bullish spread traders took profits when the gap closed from almost -$30.00 to above -$10.00.
Considering trending markets, I believe that the spread will tighten, however as a cautious trader, I cannot ignore the tensions in the Middle East, namely Iran. Brent prices are expected to rise at parabolic levels if and when this tension becomes disaster. In that case, the spread would widen at a rapid rate and bearish spread traders could pocket an easy overnight short winner.
As visible in the chart below, the crude spread typically trades in a tight range with frequent crossovers.
David Cornes holds a degree in economics from the University of Montana.
