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Wild Ride Expected for Brent-WTI Spread

With November Brent Crude futures expiring in Friday’s session, traders are expecting more volatility on the spread between Brent and WTI oil futures.

The spread rose to as high as $27 in Thursday’s session. Petromatrix analyst Olivier Jakob says the main trading action for the last two days has been a convergence trade on the front Brent spread and the Brent premium to West Texas Intermediate, or WTI.

He expects that spread to peak in January, when the key Dow Jones UBS Commodity index shifts some of its crude allocation from WTI To Brent. That will provide some support for Brent, which many traders see as a better gauge of international oil prices than WTI.

Front Month Nymex crude (WTI) lost $1.35 per barrel Thursday, or 1.6 percent to $84.23. Nymex floor trader Ray Carbone of Paramount Options says the pullback in oil was expected after the recent short-covering rally.