The much followed but notoriously difficult to trade spread between US WTI crude and Brent crude saw the biggest collapse in weeks. Enbridge the US operator of the Seaway pipeline announced that it has agreed to reverse the direction of oil flows in order to enable it to transport oil from Cushing, the delivery hub for WTI, to refineries along the US Gulf Coast. Although this reverse flow of some 150,000 barrels per day, pending regulatory approval, will not commence until the second quarter of 2012 it caught traders' attention and WTI crude rallied as higher quantities will be flowing towards the coast where prices are closer to that of Brent Crude.
The spread has remained stubbornly high for months despite the storage levels at Cushing. The original explanation for the widening has been shrinking for many weeks thereby removing one of the reasons why US landlocked oil should be trading at a discount to the global market, represented by the price of Brent.
The narrowing of the spread is welcome news for the DJ UBS commodity fund. At the annual rebalancing in January 2012 it will add Brent crude to its basket of commodities while halving the exposure to WTI. This exercise will trigger a near $4 billion or 40 million barrels switch out of WTI into Brent and the recent collapse in the spread will benefit investors in the fund. Traders who have positioned themselves ahead of this trade have burnt their fingers and stop loss trades have probably helped the spread to narrow.
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Brent WTI Crude Spread Collapses On Seaway Pipeline Reversal
Published 11/17/2011, 12:49 AM
Updated 03/19/2019, 04:00 AM
Brent WTI Crude Spread Collapses On Seaway Pipeline Reversal
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