Brent-WTI Spread

Yes, most MAS-licensed CFD brokers offer both Brent and WTI CFDs. You can hold both positions in the same account. Ensure you have sufficient margin for both legs and check if the broker offers any spread margin reduction.

Minimum S$10,000-15,000 recommended. Because you hold two positions, margin requirements are higher than outright trading. However, some brokers offer reduced margin for hedged positions. The larger capital allows proper position sizing across both legs.

In the current regime (post-2015), the spread typically ranges $2-8, with an average around $4-5. However, this can change with structural market shifts. Always calculate the rolling mean rather than assuming fixed levels.

No, monitor the SPREAD, not individual prices. If both prices move equally (both up $2 or both down $3), your spread position is unaffected. Set alerts based on spread level, not individual leg prices.

You need access to both Brent and WTI. If your broker lacks one, you'd need a second broker (not recommended due to complexity) or switch to a broker offering both. Most major MAS-licensed brokers (Saxo, IG, IB) offer both.

EIA primarily affects WTI through Cushing data. If you're short the spread (long WTI), a Cushing draw helps your WTI leg. Monitor Cushing specifically, not just headline crude inventory. You can also tighten your spread stop around EIA if concerned about surprise differential impact.

Rebalance when notional imbalance exceeds 10%. Over-rebalancing creates transaction costs; under-rebalancing creates directional exposure. 10% threshold balances these concerns. Weekly review is typically sufficient unless one leg moves dramatically.

London/US overlap (9-11 PM SGT) offers best liquidity in both instruments, tightest spreads on each leg, and most reliable execution for simultaneous entry. Avoid Asian session when WTI particularly can have wider spreads.

Based on half-life analysis, most Brent-WTI spread trades should work within 10-20 days. Set a time stop of 20-25 days. If spread hasn't reverted by then, the mean reversion thesis may be wrong (possible regime change).

Honor the stop. A spread moving significantly beyond 2.5 standard deviations may indicate regime change (new fundamentals establishing new normal range). Take the loss and reassess. The spread may establish a new mean at the extreme level.

Run OLS regression: Brent = α + β×WTI + ε. The coefficient β is your optimal hedge ratio. Test the residuals (ε) for stationarity using ADF test. If stationary, use β for position sizing. For dynamic ratio, use rolling regression (60-90 day window) or Kalman filter.

Several approaches: (1) Use a broker with spread execution capability, (2) Enter during high liquidity with limit orders at current spread, (3) Accept small legging as transaction cost, (4) Use algorithms that coordinate entry on both legs within tolerance, (5) For larger size, consider futures markets with tighter spreads.

Top features typically: Cushing inventory change (3-week average), Cushing inventory level vs 5-year average, US crude exports, spread z-score (current deviation), spread momentum (5-day change), VIX (risk appetite), and DXY (dollar strength affecting export economics).

Synthetic spread call: Buy Brent ATM call + Buy WTI ATM put (profits if spread widens). Synthetic spread put: Buy Brent ATM put + Buy WTI ATM call (profits if spread narrows). Key: Match notional exposure in options (delta × contracts × contract size). Monitor combined position Greeks.

Warning signs: (1) Spread exceeds 3+ standard deviations and stays for 30+ days, (2) Major structural announcement (new pipelines, export policy, sanctions), (3) Cointegration test begins failing on recent data, (4) Half-life extends significantly (>30 days), (5) Correlation drops below 0.80 persistently. Respond by reducing position and widening parameters.