During the month of May so far, Brent crude oil futures have declined from $128.40 to $110.93 (-$17.47), or nearly 14%, while NYMEX Oil has declined from $106.49 to $93.65 (-$12.84), or about 22%. This has resulted in a widening of the Brent-NYMEX differential from $13 to nearly $18.

Judging from both the recent up-leg pattern of the differential and the powerful position of its near-vertical momentum gauge, the Brent (British North Sea oil)-NYMEX (U.S. oil) spread should continue to widen towards a retest of its year-long resistance line, now at $19.95.

Based on my analysis of the respective Brent and NYMEX crude oil charts, my suspicion is that a continuation of the widening of the spread towards $20.00 will be a function of NYMEX deteriorating towards $88-$85, while Brent manages to hold in and around $110-$108.50.

ETFs in play are the U.S. Oil Fund ETF (USO) and United States Short Oil (DNO), related to NYMEX oil, and the United States Brent Oil (BNO).

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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