WHITEPAPER
Crude arbitrage signals as leading indicators of flow allocation
This whitepaper presents a statistical framework showing that East-West crude arbitrage spreads act as leading indicators of physical crude flow allocation, with the strongest relationship emerging 15–45 days after the signal.
Physical crude flow data often confirms market shifts only after the commercial decisions behind them have already been made. This whitepaper introduces a practical framework for closing that gap - testing whether East-versus-West arbitrage spreads can serve as early indicators of where marginal crude barrels will actually clear.
Key takeaways
- Arbitrage spreads lead physical flows, not the other way around: East-West arb signals show a measurable, directionally consistent relationship with where crude flows 15–45 days later, reflecting the real-world lag between screen pricing and cargo fixing, nominations, and loading.
- Flexible export systems show the cleanest signal: LatAm sweet crude has the strongest statistical relationship (correlation of 0.76), followed by USGC Midland (0.43), while WAF light sweet is weaker (0.35) but still directionally consistent due to its more constrained market structure.
- Thresholds matter more than small daily moves for USGC Midland, Westbound flows only respond clearly once the West-East spread exceeds roughly +$2/bbl, meaning noise below that level shouldn't be read as a routing signal.
- This is a decision-support tool, not a trading signal : The framework is best used to flag routing bias early and prompt traders to watch for confirmation via fixtures, nominations, and loading programs — not to predict individual cargo movements.
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Michael Rodriguez
Chief Strategy Officer, Global Trade Inc
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