Pepperstone Financial, a prominent Australian broker, today announced the introduction of 2 new tradeable CFD products available to clients as of this week.
West Texas Intermediate (WTI) and Brent Crude Oil contracts have been announced to further bolster the company’s product offering which has been gradually expanding over the past 12 months. Last week, Pepperstone announced the introduction of the ZAR/JPY currency pair focusing on carry traders and Japanese clientele.
Both the WTI and Brent CFD contracts track the underlying price of crude oil for physical delivery traded on the Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE) exchanges respectively. The WTI contract represents oil obtained in North America while the Brent contract refers to oil obtained from the North Sea in Europe. Both contracts will be traded as ‘spot commodities’ against the U.S dollar and will reflect the movements in the front-month futures price for each product.
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Volatility Is King
Traders tend to be attracted to volatile market conditions and oil prices tend to bring just that – volatility. Given the current ongoing geo-political uncertainties around the globe in places such as Ukraine, Syria, Iraq and South America, as well economic factors such as changes in energy supply & demand relating to China, Russia and OPEC, crude oil has become an attractive trading instrument for speculative traders.
The WTI-Brent Spread, a measure of the price difference between the two contracts can often be a trading instrument in its own right as macroeconomic factors tend to drive the spread higher or lower depending on supply and demand conditions.
In recent times, a popular trading strategy has been to sell WTI and buy Brent contracts simultaneously (partially hedged by the inherent correlation of the two contracts) with the expectation that the WTI-Brent Spread will widen due to variability in stockpiles and speculation regarding future energy demand from large consuming countries such as China, India and the US.