The spread between Brent crude and WTI is narrowing once again and is at the lowest since October 17th. The main driver has been the rise in WTI and that’s partly down to two reasons. One is the weather obviously and the other is down to the start of draw downs from Cushing via the TransCan pipeline.
Brent/WTI spread
Adam likes a seasonal oil long at this time of year and I can see why. Aside form the weather factor refineries are heading into maintenance season. While the effects are usually minimum, as seasonal demand tends to drop around this time of year, the longevity of bad weather and further draw downs from Cushing suggest that prices could remain elevated.
Given also the Chinese data figures that showed an 11.9% increase in oil demand in January from a year previously, there’s further ammunition to say that prices will keep their gains.
WTI broke through the 50 fib of the August swing down at 101.83 and has been using the former level as support. We’re also toying with a resistance line from October.
WTI h4 chart
Since the 100.72 level was broken it’s been a one way street and we’re likely to see that level acting as support now as well as 100.25. On the upside 102.85/90 may provide some resistance but it will be the 61.8 fib and October high at 104.27/33 that will likely show a stronger hand.
With all the action in WTI, Brent is partly just along for the ride but further draw downs in the stock numbers this week and if we start to see problems with energy supplies from the Ukraine over the current troubles, then that’s more fuel to the bullish fire.
Brent crude weekly chart
Brent is still sitting a few bucks from where I’d prefer to take a short but I’m going to be wary of the ongoing factors above and will look to keep things fairly tight. With WTI it looks more like a case of looking for the dips to hold the levels for a long play unless we get up into that 104 area.