The oil market is doing something it hasn't done in 3 years — and it's bullish for crude

The spread between West Texas Intermediate and Brent crude futures prices has widened to new extremes recently, and this is a bullish development.

The spread has reached more than $11, the largest since mid-2015. WTI is trading a little over $65 per barrel, while European Brent crude, the international benchmark for oil, is trading near $76.

This is more than double the size since the beginning of May, and this deep discount will become extremely attractive as producers work through the pipeline constraints.

The shale effect

Both contracts peaked on May 22 before selling off sharply due in part to OPEC production decisions and technical selling. While Brent has recovered back into the middle of this range, WTI remains relatively muted — rising domestic shale production and the inability to move this crude through the pipeline and to the Gulf of Mexico are two key catalysts.

These pipeline constraints have stockpiled crude oil throughout Texas and Oklahoma, and federal data this week estimated another production record. I have been bullish on crude oil all year, and rising production has not deterred this belief because of strong demand.

On a technical basis, when looking at this spread, support has historically come in at $11.50 to $12. I like buying WTI and selling Brent at this juncture, and I expect this spread to find its way back to $7 before the end of June.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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