2017: Buy WTI / sell Brent

We said:

The Brent-WTI spread has risen in the past few months as supply curbs in OPEC and Russia have been effective, and US production has increased. Hurricane Harvey also reduced demand from US refineries (which cut production), so when the IEA forecast higher global demand, Brent prices were most affected. The spread widened to almost $7, its highest in two years.

US refineries are now getting back up to speed and the spread is now likely to narrow.  US domestic demand should also begin to increase and rising US exports should ease global demand for Brent oil. We expect the spread to return to its 2016-17 range of around $1-$3. 

We sell Brent oil futures and buy WTI oil futures at a spread of $6.50 with a target of $3 and a stop-loss at $8.

Outcome:

The trade hit our $3/bbl target and was closed for a profit of 78bps or 5.2%. 

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