Pair Trade: Oil/Copper

Industrial/Transportation


Pair Trade: Long Oil / Short Copper

Highlights

Crude oil and copper prices are impacted by many of the same economic forces, and have been trading in lock-step (a correlation of ~0.8) over the last 10 years. Brent Crude spot prices reached a peak of ~$125 per barrel in 2012, and then traded at over $100 per barrel up until June of 2014 (~$115). By comparison, Copper spot prices peaked at nearly $10,000/mt in early 2011, and have been in a state of steady decline since (~$6,000/mt today, $5,600 in early January, 2015). With the price of Brent Crude Oil presently in the mid-$50s per barrel, the presenter sees an opportunity to get long oil and short copper based on his belief that oil producers behave relatively rationally when compared to copper producers, who have yet to curtail production in the face of changing supply/ demand dynamics. He summarized the main points of his thesis as follows:

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Idea Discussion

Commentor 1 - 2 weeks ago

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