pricing Brent/WTI spread

carsonville · Post by **carsonville** » Sat May 19, 2007 3:49 am

I have been asked to come up with a pricing methodology for pricing the spread between brent and wti oil. This would be purely quantitative and not involve interpreting fundamental data. Does anyone know of any "standard" formulas or techniques I could use as a starting point? Would this be the same as an equities pair trade? thanks

danko · Post by **danko** » Sat May 19, 2007 5:13 am

[url=/User%20Files/2650/huntdunis.pdf]Attached File: huntdunis.pdf[/url]

Omega · Post by **Omega** » Thu Jun 07, 2007 10:38 am

on another note why is brent crude more expensive than WTI. I would have thought it should be the other way round. WTI is sweet. Brent crude tends to be sour. Or am I missing something very basic?

HLCYG · Post by **HLCYG** » Thu Jun 07, 2007 11:30 am

here you can find an explanation: http://www.marketoracle.co.uk/Article874.html

A Tale of Two Crudes, WTI Divergence from Brent Crude Oil

HeatOilTrader · Post by **HeatOilTrader** » Fri Jun 08, 2007 7:06 am

I'm not sure what your end goal is but assuming it's making money by trading WTI/Brent I think it's extremely short sighted to ignore the fundamentals...

Having said that here are a couple more papers that might get your wheels spinning.

[url=/User%20Files/435/Nomikos.pdf]Attached File: Nomikos.pdf[/url]

[url=/User%20Files/435/Dafas.pdf]Attached File: Dafas.pdf[/url]

As far as crude spreads being similar to equity pairs, I've never traded equities beyond punting in my PA but if that's your impression, please get in touch, I'd be glad to make markets in Brent/WTI for you. Evil Grin

Omega · Post by **Omega** » Fri Jun 08, 2007 12:17 pm

You sound pessimistic on the trade!?

You got any more papers like this please?

HeatOilTrader · Post by **HeatOilTrader** » Tue Jun 12, 2007 8:11 pm

I'm not necessarily pessimistic about the trade, I just see better opportunities in energy than WTI vs Brent. At the end of the day I don't have much, if any, edge in crude so not much incentive to trade it.

I just pulled those off our network and don't have time right now to search for others but will when time allows. Sign up for a trial to Energy Risk, it will give you access to the archives which includes numerous articles that might be of interest.

Omega · Post by **Omega** » Wed Jun 13, 2007 10:45 am

thanks for your help.

Omega · Post by **Omega** » Thu Jun 14, 2007 11:20 am

Returning to an old theme. THe WSJ state this

Crude-oil futures rose to more than $66 a barrel after government data showed stable gasoline stockpiles and an unexpected drop in U.S. refinery activity, rekindling worries about summer supplies.

But there is a gasoline shortage because of refinery shortages not because of too little crude oil. So why should crude oil shoot up?

Omega · Post by **Omega** » Mon Jun 18, 2007 6:26 pm

So oil again shoots up and still the press keep talikng about supply concerns in USA regarding gasoline to explain this price rise.

But am I missing something again. Supply issue is due to refinery problems...not lack of crude???