A strange divergence is gripping the energy market. Here’s how to play it

The relationship between oil and energy stocks has diverged to a notable degree, and investors may wonder how to play the spread.

Just consider the way WTI crude and the S&P energy exchange-traded fund, the XLE, have traded so far this year. The XLE has sunk 5 percent year to date, while crude has gained 4 percent in the same time.

The two assets typically trade in tandem, but recently the departure between the commodity and the equities has grown more pronounced.

Since mid-2015, the XLE has traded at a premium to WTI crude in a range of $15 to $30; this trend was broken in November ahead of OPEC’s production meeting.

I remain very upbeat on the broader stock market, and believe this is a rare opportunity to sell WTI oil and buy the XLE. With the spread currently at $6, I expect it to widen to $12.