Brent vs WTI infographics describes what are Brent and WTI crude oil benchmarks, what is the relative significance of Brent and WTI crude oil benchmarks for global crude oil markets in pricing different oil blends by various countries, where are main trading centers for Brent and WTI futures contracts, where is the delivery location for WTI futures contracts. The infographics highlights the relative significance of Brent and WTI futures contracts trading in terms of trading volume among top ten most traded instruments.
It presents what is the Brent vs WTI spread, what are main components of the spread based on crude oil quality and logistical requirements for supply, what are main factors affecting the spread. It describes the general dynamics of the Brent vs WTI spread as a variation around an average value, and how different supply and demand conditions affect the Brent vs WTI spread. It presents how trading strategies can be formed based on the mean reversion property of the Brent vs WTI spread.
Specifically, it describes how the movement of the Brent vs WTI spread relative to a simple moving average of the spread can be used as a basis for the spread trading.
Three main strategies are distinguished based on the relative configurations of the spread and the simple moving average of the spread on the spread chart: opening short positions when spread value is above the simple moving average; opening long position when the spread is below the simple moving average; and deciding which direction to bet based on supply/demand predictions for Brent and WTI when spread is not different from the average value.
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