From the October 2013 issue of Futures Magazine • Subscribe!

Got volatility? Use OTC markets as a guide to arbitrage

The loss of Libya’s light sweet has caused differentials of other light sweets such as Azerbaijan’s Azeri Light, Nigeria’s Qua Iboe and Bonny Light to trade up relative to Brent (see “Crude continued higher?” below). The continued disruption in light sweet supply has weighed heavily on margins as the products largely have not yet followed suit. Without a rise in margins, Platts suggests the differentials will not necessarily fall; however, they should not rise much further.  Refiners in the ARA complex are large buyers of Libyan crude and these issues will bring their weight to bear on the Northwest Europe product markets in the coming months.  

We anticipate short-term volatility to rise off multi-month lows going into the fourth quarter. The issues surrounding Kirkuk, Urals and Es Sider will continue to have tertiary effects on other crudes and products at hubs around the globe. Additionally, geopolitical posturing by major crude exporters in the face of the Syrian conflict only will compound global volatility as the U.N. Security Council is unlikely to approve international intervention following the recent sarin gas attacks (see “Got volatility?” below). 

The fourth quarter is likely to be choppy. Buckle up.

Jason S. Williams, ERP, is an over-the-counter commodity broker specializing in the global energy markets for Coquest in Dallas, Texas. Currently he is pursuing his master’s degree in shipping and logistics from Middlesex University’s Lloyds Maritime Academy. You can reach him at

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