Sample strategy #3 – Trading WTI/BRENT Spread
The WTI-Brent spread is the difference between the prices of two types of crude oil, West Texas Intermediate (WTI) on the long side and Brent Crude (Brent) on the short side. The two oils differ only in the ability of WTI to produce slightly more gasoline in the cracking ratio which causes WTI’s slight pricing margin over Brent. As both oils are very similar their spread shows signs of strong predictability and usually oscillates around some average value. Could we use a trading strategy and exploit this spread's reversion?