What about WTI vs Brent? Which one leads? Does it depend on the time of the day (WTI during US hours, Brent during London hrs)?
Crude Oil
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You just never support yourself about a bullish CL with a "massive" equity sell-off. At least it is not a general picture....
Yep. Glad to see that someone gets the concept. There is hope.
Now Brent vs WTI correlation gets weaker and weaker.
US crude production gets higher and higher and the net CL import gets lower and lower. But due to refinery location and setups, there are more product (blend) trading vs CL trading across the globe. So there will always some correlation between the two.
Before, NG was correlated to CL. But not any more, or any longer. There are totally different products now.
Obviously they're correlated, probably over 90%. But do they move in tandem because of the popular spread between the two, or does one lead the other more often than not?
My guess is that it depends on the time of day and what's going on overseas vs domestic.
My guess is that it depends on the time of day and what's going on overseas vs domestic.
Everybody knows that, and it's not terribly useful in terms of making money trading. But if you have a WebICE feed and can see the Crude Block Trades and the cleared Swaps trade ahead of the CME Nymex futures - that's useful.
If that is not useful, then having a "bullish CL with a massive equity sell-off" is useful???
Look at the shape of the curves. Also the shape of the curves one year, two year and 5 years ago.....
Very little of the WTI and Brent oil going to each other market. But there is more trading on bunker fuel, more gas coming to US and more diesel going to Europe....
And if you are very adept at inter market correlations and cointegration - you trade off of that knowledge. For example, there was a space of about 24 months where the CL futures contract and 6E futures contract moved, quite literally, tic for tic. I remember a space of about five years where the third month Eurodollar contract and the Japanese Yen moved tic for tic. In the Summer months, it wouldn't be unusual for the Unleaded Gasoline contract to lead the CL contract.
And when highly correlated instruments de-couple, it can also represent a very powerful signal. That's why I made my May 13 post here on this thread: "Crude firmer as a consequence of Saudi/UAE commercial vessel sabotage attacks - and in the face of another massive equities sell-off. Impressive. And bullish." And I was correct. I knew from experience that Crude Oil rallying modestly in the face of a massive 450 point sell-off in the Dow meant something very important. The correlation between Crude Oil and the broad market S&P 500 equity index (not an energy index) was about 95% up to that date.
Look at the chart:
To an experienced professional trader with a quantitative trading acumen that is enormously useful. It's what we look for. Live for it. A couple hundred traders have hired me to teach them this stuff, in fact. Instead of blindly criticizing me - maybe try to understand the gifts I have just layed down here.