Here’s what I would recommend: rent a tanker truck, fill up at cushing, and drive to houston.
As someone who works in energy, and has explained to 3 other people in the past week. If your a retail investor, going long USO and short BNO. Is not the way to play a physical basis for global oil. As bchad already said, unless your a major oil firm, global macro fund with access to vessels, storage and a physical market. Stay away from playing a physical basis for a commodity. Lots of retail investors are going to get kicked on plays like these using ETFs once one thing changes in the oil market and every fund/firm with access to the physical market has already long beat you to the trade. Just look at how quickly the contango in WTI crude changed in the last 2 weeks.
The costs of transportation of WTI prevents arbitrage of this spread. The WTI and Brent spread will persist as long as north american supply remains high relative to domestic demand and the world demand (which is best represented by Brent crude) remains high. As others have said, this spread still exists because arbitrage isn’t possible.
jdough Wrote: ------------------------------------------------------- > The costs of transportation of WTI prevents > arbitrage of this spread. The WTI and Brent spread > will persist as long as north american supply > remains high relative to domestic demand and the > world demand (which is best represented by Brent > crude) remains high. As others have said, this > spread still exists because arbitrage isn’t > possible. once the spread gets over $10/bbl it gets profitable to truck and barge. but you are right, the general reason the spread exists is that the inland crude is landlocked, there is no pipeline running from cushing to the gulf coast. I think the spread will definitely narrow from current levels. the storm that racked the south right before the superbowl knocked out a surprising amount of refinery capacity in what is already a weak demand season.
One way to play this as a retail investor would be to short some of the mid-continent pure play refiners who are benefitting from the wide spreads. That would be stocks like Frontier, Holly, Western Refining. Tickers FTO, HOC, WNR. I’d assume a bunch of hedge funds will pile on that trade. Those stocks have ripped up over the past few months due to the blowout in the spreads. I work in the industry and this has been the hot topic. Most people think the “new normal” long-term spread will be $6-$8 /bbl.
Former I-Banker Wrote: ------------------------------------------------------- > One way to play this as a retail investor would be > to short some of the mid-continent pure play > refiners who are benefitting from the wide > spreads. That would be stocks like Frontier, > Holly, Western Refining. Tickers FTO, HOC, WNR. > I’d assume a bunch of hedge funds will pile on > that trade. Those stocks have ripped up over the > past few months due to the blowout in the > spreads. > > I work in the industry and this has been the hot > topic. Most people think the “new normal” > long-term spread will be $6-$8 /bbl. hope you didn’t put this short on yesterday.