JSE widens rand-based oil futures trading

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JSE investors can now exploit in rands the increasing divergence in price between Brent Crude Oil Futures (BRNT) and West Texas Intermediate Oil (WTIO) contracts.

The exchange this week introduced the BRNT contract settled in rand to complement the existing, rand-settled WTIO contract.

Chris Sturgess, the JSE director of commodity derivatives said yesterday the 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.”

The futures contract for Brent crude which expires in March next year is 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.

Wesley Martens from CJS Securities, responsible for market making on the contracts, is optimistic the new product will receive 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.”

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