August and September WTI Brent arb

Overview

Back on June 9 we had mentioned that the August WTI Brent arb looked to be getting overbought as the spread had risen to its best spot contract value since September of 2023. The spread had gained at that time on the narrative of lower crude oil prices possibly reigning in production in the U.S., thus favoring the WTI. 

In the past week, shipping costs have risen due to the Iran/Israel conflict, thus increasing the cost to move WTI crude towards Europe. This has seen the Brent gain on the WTI, thus widening the arb. Another reason for the widening of the Brent versus the WTI is the underlying concern of shipping of crude supplies being interrupted out of the Mideast, thus increasing worries of a possible closure of the Straits of Hormuz by Iran, hence possibly reducing supply to Europe. 

The August WTI Brent arb saw a spike to a low of $4.230 on Friday June 13 amid the outbreak of the Iran/Israel conflict. But other than the hour in which that low was seen, the 60 minute chart suggests that there is now support for WTI versus Brent at -$3.37/-$3.36. Below that support for the WTI is seen at the -$3.44 area. Upside resistance for the WTI/support for Brent is seen at the -$2.81/-$2.78 area. Momentum still favors the Brent and is not oversold as yet. 

But, the September arb is showing momentum that looks poised to turn in favor of the WTI --hence a narrowing of the spread. Today's low for the arb of -$3.53 is the lowest/widest value for the September spread in 6 weeks. Support for the WTI versus the Brent is seen at the session low at -$3.53. Resistance for the WTI versus the Brent on the upside is seen at -$3.11 and then at the recent high at -$2.98. 

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