Hedge funds and prop desks have been entering the oil derivatives market in increasing volumes in the last few weeks to take advantage of the widening price difference between crude oil and jet fuel, according to traders. A squeeze on refining capacity means jet fuel prices have rocketed beyond the 25% rise in crude oil prices in the last month. Data from Argus, the energy price reporting service, shows the differential between jet fuel and Brent Forties Oseberg benchmark crude oil was around USD10 a barrel last week, compared to USD4 a barrel a year ago.
In one popular trade, investors take positions in crack spreads, for example going long crude oil and short jet fuel via a swap, according to hedge fund marketers. Ian Vickers, manager in risk control at RWE Trading in Swindon, said the company's proprietary fuel desk has executed similar trades in the last few weeks.
