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Dennis Gartman: Brent-WTI Spread Won't Exceed $20

Wednesday, 16 Feb 2011 | 2:01 PM ET

Oil prices surged after the news from Israel's foreign minister that Iran plans to move two warships through the Suez Canal to Syria. In turn, both Brent crude and West Texas Intermediate prices rose sharply on Wednesday.

Currency and commodities trader Dennis Gartman is taking the news seriously, especially since it comes from a top official. The news has a greater impact on Brent than it does WTI , Gartman said. After all, Brent is the European benchmark for oil with closer proximity to the Middle East. In turn, Brent was lifted to 29-month highs and added to Middle East jitters after reports of clashes in Iran, Yemen and Bahrain, raising concerns about disruption to oil flows.

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Unrest in Egypt helped push Brent crude over $100 a barrel in late January, helping send its premium to U.S. oil futures to record levels over $16 a barrel. In the wake of Wednesday's news, Brent crude hit its highest level since September 2008.

Brent's stronger gains pushed its premium to U.S. crude to $15.56 a barrel on Wednesday, as high inventory levels at the Cushing, Okla., delivery point for the New York Mercantile Exchange oil futures contract weigh on U.S. prices.

Gartman said WTI is cheap, but isn't a practical alternative to Brent. Stored in Oklahoma, it needs to be shipped to the Gulf of Mexico by railroad or truck before it can be put on a ship and sent around the world. It costs up to $6 a barrel to ship by railroad and up to $10 a barrel to ship by truck, Gartman said.

In the event that Brent gets so expensive, it will become cost effective to start shipping WTI. For that reason, Gartman doesn't think the Brent-WTI spread will exceed $20.

What's the Trade?

Gartman recommends playing Canada through Calgary-based Suncor Energy .

To see the full conversation with Gartman, watch the video.

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Trader disclosure: On Feb. 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (F) bonds and calls. Pete Najarian owns (GM), (YHOO), (MS), (C), (GE), (MU), (CNI) and (TCK). Pete Najarian owns (V) call spreads. Pete Najarian owns (JPM) call spreads. Pete Najarian owns (BAC) call spreads. Pete Najarian owns (NVDA) call spreads. Pete Najarian owns (CLF) call spreads. Joe Terranova Owns (VRTS), (C), (PEP), (UPL), (GM), (APA), (CVI), (SU) and (CNQ). Joe Terranova owns (CME) puts. JJ Kinahan is short SPY through options. JJ Kinahan is long (F) through stock and options. JJ Kinahan is long (CSCO) through stock and options. JJ Kinahan is long (YHOO) through options. JJ Kinahan is short (MSFT) puts. JJ Kinahan owns (C). JJ Kinahan owns (GE) through stock and options. JJ Kinahan is short (IWM) options.

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BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (IAU)
Accounts Managed By Kanundrum Capital Own (SLV), (SLV) calls, short (SLV) puts
Accounts Managed By Kanundrum Capital Own (INTC), (INTC) calls, short (INTC) puts
Accounts Managed By Kanundrum Capital Own (AMD)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (JEF)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (DBA)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (DRYS)
Accounts Managed By Kanundrum Capital Are Long USD
Accounts Managed By Kanundrum Capital Are Short The Yen
Accounts Managed By Kanundrum Capital Are Short The Australian Dollar

JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (DPUKF)

DENNIS GARTMAN
Funds Managed by Dennis Gartman are long the Canadian Dollar
Funds Managed by Dennis Gartman are long the Australian Dollar
Funds Managed by Dennis Gartman are long Gold
Funds Managed by Dennis Gartman are long Wheat
Funds Managed by Dennis Gartman are long Corn
Funds Managed by Dennis Gartman are long Soybeans
Funds Managed by Dennis Gartman are long Sugar
Funds Managed by Dennis Gartman are long Crude
Funds Managed by Dennis Gartman are long Nat Gas
Funds Managed by Dennis Gartman are short the Euro
Funds Managed by Dennis Gartman are short the Sterling
Funds Managed by Dennis Gartman are ahort The Yen

CNBC.com with wires. Reuters contributed to this report.

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