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Crude Prices: Is the Brent-WTI Spread Unwinding?
17 Feb 2011 EST - CNBC.com
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Mideast tensions are growing. Technical levels are being breached. And there’s a long weekend ahead. All reasons for traders to cover short positions on oversold oil futures and take profits on positions that have skyrocketed over the past few weeks.

Witness the change in the oil price spread, which has been the biggest momentum trade in the crude market for the past few months. Some traders are calling it “a major unwind” of the Brent-WTI spread.

Indeed, April North Sea Brent crude futures fell to below $103 a barrel Thursday, while March WTI futures, which are set to expire on Tuesday, rose $1.50 to a session high of $86.50 a barrel. The April Nymex crude contract also gained more than $1 to trade above $89 a barrel. The spread collapsed from $16 to less than $14 in a few hours.

But there are several factors at work here.

Technically, U.S. oil prices may have become oversold. Today’s rally in U.S. oil prices may have been sparked by concerns over protests in Yemen, Libya and Bahrain , as well as questions over the intent of Iranian warships scheduled to head to the Suez Canal. But the rally extended to the highest price in a week as the March contract rose above the 100-day moving average, a key technical level. Also that contract expires on Tuesday and some traders may have been anxious to cover positions ahead of the long weekend.

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