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Johannesburg - The JSE broadened its range of commodity derivatives this week by introducing a Brent Crude Oil Futures (BRNT) contract settled in rand. This contract complements the existing rand settled West Texas Intermediate Oil (WTIO) contract.
The director of commodity derivatives at the JSE, Chris Sturgess said: "This new contract not only provides easy access to the Brent crude oil market in rand, but also enables market participants to trade the spread, or the difference in price, between Brent and West Texas Intermediate crude oil.
"These two prices have historically followed each other closely, but have started to diverge over the past few years in part because of higher oil production in the United States.”
Brent crude oil is sourced from the North Sea, but is used as a benchmark to price crude oil from Europe, Africa or the Middle East.
West Texas Intermediate provides the benchmark price for oil that is refined in North America.
Oil contracts
The futures contract for Brent crude, which expires in March next year, is currently trading around R125 higher than the futures contract on West Texas Intermediate.
Investors can trade the spread by taking opposite positions in the two oil contracts depending on their view and if the spread is going to widen or narrow.
The new product is assured of liquidity thanks to approved market makers.
Wesley Martens from CJS Securities, who is responsible for market making on both Brent and WTI, is optimistic that the additional product will receive valuable attention from investors:
“The crude oil markets tend to be volatile and with the JSE introducing a spread contract between WTI and Brent, this has made it easier for local investors to participate in this trade.”
Sturgess says the additional crude oil product will certainly appeal to South African investors looking for exposure to international oil markets and aiming to trade the fluctuations in the price of oil more efficiently.
The director of commodity derivatives at the JSE, Chris Sturgess said: "This new contract not only provides easy access to the Brent crude oil market in rand, but also enables market participants to trade the spread, or the difference in price, between Brent and West Texas Intermediate crude oil.
"These two prices have historically followed each other closely, but have started to diverge over the past few years in part because of higher oil production in the United States.”
Brent crude oil is sourced from the North Sea, but is used as a benchmark to price crude oil from Europe, Africa or the Middle East.
West Texas Intermediate provides the benchmark price for oil that is refined in North America.
Oil contracts
The futures contract for Brent crude, which expires in March next year, is currently trading around R125 higher than the futures contract on West Texas Intermediate.
Investors can trade the spread by taking opposite positions in the two oil contracts depending on their view and if the spread is going to widen or narrow.
The new product is assured of liquidity thanks to approved market makers.
Wesley Martens from CJS Securities, who is responsible for market making on both Brent and WTI, is optimistic that the additional product will receive valuable attention from investors:
“The crude oil markets tend to be volatile and with the JSE introducing a spread contract between WTI and Brent, this has made it easier for local investors to participate in this trade.”
Sturgess says the additional crude oil product will certainly appeal to South African investors looking for exposure to international oil markets and aiming to trade the fluctuations in the price of oil more efficiently.
