(click for larger and clearer image)
One of the things I spoke to Richard Sandor about at the Milken Institute’s Global Conference was the relationship between WTI Crude and Brent Crude, as well as the ratio between WTI Crude and Natural Gas.
The chart above depicts the difference between Brent and WTI crude. You can notice a trend in the difference in the spread in that Brent is trading at more than $12 premium to the WTI crude. What does that say for Brent? What does is say for WTI? It may signify that Brent crude is becoming the global standard and is in higher demand.
(click for larger and clearer image)
This chart depicts the ratio between WTI Crude and Natural Gas. This ratio historically trades near 10, but in recent years has been over 20. Does this ratio say something more about crude or natural gas? It may be both. What say yooze?
Another trend which you’ve probably noticed, Michael and which is
apparent in, for example both the July and December contracts is the MGEX /CBOT wheat spread. I’m trying to work out why the former is trading at a continually growing premium. Any insights?
Protein content. The former is a hard wheat what can have as much as 50%
more protein by weight than the CBOT soft wheat. Difference uses.
Thanks, so I guess right now, the market is placing more value on the higher protein wheat.
Spreads are “relative value” trades, so you can look at it from either
standpoint…one contract relative to the other. The term “value” in
commodities is not the same as “value” wrt to equities. A trader has to also
consider what the risks are to the supply and demand for each commodity, as
that emotion is factored into the futures price. Commodity futures are a
risk-transference market.