Falling Brent/WTI spread boosts oil investments
Crude oil futures in the U.S. rose to their highest peaks in more than twelve weeks today on the commodity index, as investors rallied to trade off on the spread between the European and American commodity futures. Oil investments flourished, as traders took advantage of discount margin between the two markets, shrugging off U.S. Energy Department reports, which announced a rise in the nation’s crude oil stockpiles.
Though Brent crude oil prices took considerable falls, due to grim economic data stemming from the U.S. and persisting discord in the euro zone, West Texas Intermediate crude oil futures shot up, as investors flocked around the sector in order to reap the benefits of the WTI/Brent futures spread, which is now at its narrowest marks since early June.
The backwardation effect taking over the commodities market also prompted the drastic shift. A backwardation signifies a time when immediate commodity futures are more expensive than future prices. Oil investments surged considerably today, when data hit the sector that the spread between December contracts in 2011 and those of next year changed from -$1.65 to $2.20.
Economists and investors struggled to understand why such a sudden and extreme change struck the commodity index, without any fundamentally acceptable factors at play. The crude oil stockpiles in the U.S., which have been dwindling for more than a month, caused at least some of the reversal.
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Brent crude oil futures in London dipped 53 cents for delivery in December and currently sit at $110.92 per barrel. The European benchmark commodity plunged early in the session, when a meeting preceding the European summit was cancelled due to discord within the nations concerning the exact details of their debt resolution plan.
WTI crude oil prices for delivery in December gained almost $2 and now sit at $93.17 per barrel on the New York Mercantile Exchange.