For several years now, the price of Brent Crude Oil has been nicely outperforming prices of the West Texas Intermediate light sweet crude oil. But I think we’re finally starting to see that shift in momentum back towards WTI.
Here is a chart of $USO vs $BNO, the two ETFs that represent WTI and Brent crude oil. You’ll notice the brief new low in November that quickly came back and sparked this recent rally in the spread:
This next chart takes a closer look at that whipsaw in the USO/BNO spread. Not only do you have an island reversal of sorts down there, but also a nice bullish divergence in momentum:
I think this spread can easily get back to 93, but this false breakdown can absolutely be the catalyst to take this spread substantially higher and well above parity.
From a risk management standpoint, more tactical participants want to see this spread hold above 82. A breakdown below that would signal to me that more consolidation may be necessary. Under those circumstances, this chart becomes messier. We definitely want to see those levels hold.
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Tags: $BNO $USO $CL_F