Slightly off topic but hoping an oil commodity trader might be able to give some insight please.
I posted here Check my maths for avoiding margin close on Oil mid term about mitigating risk over the longer term in an Long oil trade and I am thinking that it might be better to buy an ETC Oil index. ETCs I know I have access to are the WisdomTree Brent Crude Oil - “BRNT” and the WTI version “CRUD”
I have read up on the operation of these and understand why it is not as simple to mimic the oil price as it is a share index and I even appreciate the 3 sources of revenue involved.
My question is looking at the two I see that in normal times they both roughly follow the Oil price but in recent times the WTI is severely lagging - Is this an opportunity or is it a weakness.
Self explanatory graph
Thanks!
EDIT
I do note that the WTI ETC mimics the Bloomberg Crude Oil Subindex and the Brent follows the Bloomberg Brent Crude Subindex, still not understanding the discrepancy in price.
EDIT 2
OK So I see that historically the WTI vs Brent crude price has not been so divergent so out of the two I would lean more towards the WTI as it has the possibility of closing the gap to Brent as well as reflecting (hopefully) a rise in the price of oil. Learning as I go here! Is there a risk in the actual fund collapsing in these very turbulent times ?
Thanks @Wightpips for asking, very same doubt from my side. Still not getting it though. I’d appreciate the opinion of a more expert etc/oil trader, too.
BTW, I’m looking at a different but related ETC, OIL3L (3X leveraged, long), which is showing the same behaviour, but amplified. Been asking myself:
- the ratio between the price of the WTI and that of the ETC is in the ~3X range until very recently (until the 2nd of March, included), then skyrockets: why?
- is it correct to assume that, eventually, the ratio will come back to ~3X, as soon as the WTI prices go up?
- is it correct to assume that if WTI prices go up by X%, the ETC will go up by ~3 times that X%?
Welcome to the forum @nostromoeu I believe the diversification/spread between the underlying price is to do with the geopolitics, weather, uses and regulation of each type of oil. I found a google for Bent vs WTI gives a lot of information as to why there is a spread.
Having immersed myself in the complexities of contango and backwardation, the more I study the less I know - but they do seem to explain the index to ETC ratio going well off. Hopefully someone can chime in though I expect it might come down to just pick one!
I also really do not understand the benefits of each slightly different flavour of ETC so planning on sticking with the base variety unless there is a compelling, common sense reason not to!
No expert replies yet but this Crude Oil Crush Continues As Short Oil ETFs Reap Benefits | ETF Trends gives some ideas as to what is happening and why.
Personally I feel I would stay away from an EFT committed to a leveraged long position - if it does drop another $10 that impact would surely slow the funds recovery.
