Sensationalism was in the headlines, even if it is for the Brent WTI Spread.
Brent WTI Spread Charts have shown a rise in the Brent Wti Spread, but it is not like the way it has been in the past. It seems to be a slow rise rather than a spike up. Drops in the Brent WTI Spread have been rather precipitous in the past as well and these have not appeared in the past 27 months and it will eventually turn 28 months. It has not stopped media sources from sensationalizing the movements in the headlines during a relatively quiet time. To forget that the previous 10 years existed before this period existed would be disingenuous.
Above is from February 2009 to Present, it is the Brent WTI Spread on a daily chart. For those who do not know, the Brent WTI Spread is simply subtracting the West Texas Intermediate Crude Oil (Light Sweet Crude) from the Brent Crude Oil Price. From 2011 to Present, the norm has been that this is a positive spread. There have been large spreads with times of large spikes and drops. In the most recent times, the price has moved steadily and this is an interesting contrast from the past.
This WTI Brent Spread when compared to the S&P 500 appears to have no relationship, except in early 2016 when the lowest point the S&P 500 had been since 2014 and remains to be the lowest point the S&P 500 has been in since. In early 2016, the spread actually went negative for a brief time at the same time as this low point. Of course, the spread would turn positive and the S&P 500 would rise.
Was there more of a relationship between the Brent WTI Spread and the S&P 500 during the run-up to the Financial Crisis, during the Financial Crisis and the Great Recession? Interestingly, it was rather normal to see a negative spread during this time. Before the S&P 500 crashed, the Brent WTI Spread went from a clear peak to a trough that was negative. When the spread was at its lowest, the S&P 500 was at its peak. When the spread spiked in 2009, the S&P 500 had one more drop to go before reaching its own trough.
However, notice how relatively calm the spread was before 2007…
Contrasting the Brent WTI Spread with the WTI Price
The blue/purple bars represent the WTI Oil Price in U.S. Dollars, the green/red candles represent the spread. Above is a chart from February 2009 to Present. The volatility of the spread is evident in previous charts and in the chart above, from 2007 to Early 2015, there was a lot more volatility in the WTI Brent Spread (it can be called either way – does not change the volatility). When the WTI Oil Price failed to break the Ascending Triangle Pattern that had been forming, it resulted in a massive drop in price. The relationship between the two was not necessarily based on volatility and movement per se, but rather the absolute spread. There were higher spreads during times of higher oil prices with the exception of 2013 and 2014, where the spread spiking down a second time in 2014 and settling lower for much of the year served as a clue that lower WTI Oil Prices were to follow.
The spreads are a bit higher than they were during the time of extremely cheap West Texas Intermediate. However, the WTI Brent Spread is still rather low when looking at the big picture. The tame and steady movement still resembles pre-2007 markets even though it is a positive figure now.
This is the Brent WTI Spread Chart for 2004-2012. There was a price boom in 2007 and 2008. Did the Brent WTI Spread spike or jump into the teens or above? No, in fact it never rose above 7.5 and never went below -7.5. It actually stayed rather confined given the run up in West Texas Intermediate.
The Brent WTI Spread currently is in a tame place much like the pre-2007 era, except that it is in positive territory. Is it anything to sensationalize? Not really, but it is an opportunity to reflect upon this current era as being a different economic and financial time than it was before 2016. One of the biggest contributors to this would be U.S. Oil Production being on the rise while imports have fallen.
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