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Energy ETFs to Capitalize on WTI and Brent Crude Oil Moves


Even as West Texas Intermediate crude oil briefly traded at parity to European Brent, some anticipate the spread to widen again, which would boost energy sector exchange traded funds with international exposure.

Last Friday, WTI reached parity to Brent crude oil, the first time in almost three year, reports Matthew Robinson for Reuters.

Currently, WTI crude is trading around $106.7 per barrel, whereas Brent crude is at $108.1 per barrel. So far this year, the United States Oil Fund (USO) has gained 15.2%, compared to the 1.2% rise in the United States Brent Oil Fund (BNO) . [iShares: Why Oil Has Proven Resilient]

WTI represents prices that U.S. producers receive while Brent represents prices received internationally, writes Ingrid Pan, Senior Energy analyst at Market Realist.

WTI and Brent have traded on equal ground in the past, but prices have recently diverged due to the recent boost in production in the U.S. and the buildup of crude oil inventories at Cushing, Oklahoma.

Recently, the spread has narrowed as more midstream pipeline infrastructure came online. Additionally, greater pipeline capacity and crude transportation by railway has helped move oil to the East and West coast.

However, some feel that the spread could widen back from here on out. The U.S. Energy Information Administration stated in its monthly report that the spread will average $10.03 per barrel for 2013 – so far, it has averaged $13 per barrel, Pan calculated, which implies that the spread will average $6.75 per barrel for the rest of the year.

Consequently, the lower U.S. WTI prices have hurt U.S. oil producers, while a higher Brent helped boost international energy companies.

Investors who believe the spread will widen in favor of the Brent, can take a look at energy sector ETFs with a larger international footprint. For instance, Pan suggests looking at the Energy Select Sector SPDR Fund (XLE) . XLE holds large-cap energy stocks with a significant international exposure, such as Exxon Mobil, BP and Royal Dutch Petroleum. [Surging Crude Prices Lift Oil ETFs]

For more information on oil, visit our oil category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.