WTI: Taking profits on short spread – TD Securities

The TD Securities Commodity Strategists provide a strategy on trading WTI short spread amid expectations of oversupply starting out 2020.

Key Quotes:

“We previously entered a short WTI Mar-Jun spread trade at $1.15/bbl, as we expected oversupply in the first half of 2020 to see front end spreads return to contango. In the aftermath of the US-Iran tensions, the spreads reacted aggressively in our favor as bearish US inventory stats raised demand concerns once again.

With the US-China trade deal including lofty energy purchases, and risk appetite remaining fairly strong, which offers near term optimism, we are opting to take profits on the trade at $0.63/bbl.

While we still see a significant surplus on the horizon for the first half of the year and battered refining margins globally as a cause for concern regarding crude demand, short term risk-on dynamics could lend support to the front end of the curve preventing further material weakness in the spread before the end-Feb expiry.”