Publications: Notes at the Margin

The WTI/Brent Spread Trade: Financial Protection for PADD I Refiners? (June 24, 2013)


A Dow Jones reporter called June 14 to ask why refining companies were “speculating” in the WTI/Brent spread. He had heard of companies taking long positions in WTI futures and short positions in Brent. The reporter referred to Commodity Futures Trading Commission and London Commodity Exchange data on commitments of traders and noted that the merchant longs in WTI and merchant shorts in Brent had been increasing rapidly, suggesting that firms were speculating. Hedging is the more likely explanation. This week's report explores whether East Coast refiners, having survived a near-death experience only two years ago, may be using the WTI/Brent spread to hedge the cost of Bakken crude. Such trades would lessen the impact of the closing Bakken/Brent spread because Bakken crude is priced relative to WTI.


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