Long Nymex & Short Brent - Technical Take
"The calm after the storm..."
TRADE INSTRUMENT: Nymex and Brent
- ENTRY :Market
TARGET PRICE: $2.8
Hurricane season is upon us; we have seen some of the worst hurricanes in living memory as Harvey and Irma wreaked havoc across Texas and Florida. These two hurricanes have left untold damage to these two American states, sending prices of petroleum based products through the roof. Supply of oil to these two states have been literally cut off as some of the infrastructure has been destroyed or has been contaminated.
The current spread between Brent crude and Nymex (WTI), has got me thinking. Overtime the spread between the two has been tight with a $2 spread being the average under “normal” circumstances. Historically the spread had been necessitated by several factors such as the US ban on oil exports (lifted in 2015), supply chain inefficiencies and the ability to process the crude.
WTI is mainly produced in the US and Brent comes from sources out of the US. The current spread(difference) between Brent Crude and Nymex Light Crude is currently sitting at $5.80 ($55.01- $49.21). I anticipate that the spread will revert to the average of $2.61, I have placed my target price at $2.80.
To achieve this outcome, one can go Long Nymex and Short Brent Crude, in a cash neutral position (so if you use R100 for the long Nymex use R100 on the short Brent)
Source: Bloomberg 2017
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