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THOF2025 trade ideas

GASOLINE: Turned bullish on 4H as the MA50 held.Gasoline turned bullish on its 4H technical outlook (RSI = 56.424, MACD = 0.010, ADX = 32.938) as it rebounded strongly on the 4H MA50. The overall pattern looks very much like the October 2nd 4H MA50 rebound, which rose to almost the 2.0 Fibonacci extension. That is our Target (TP = 2.1650), just under the R1 level. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
NYMEX:RB1!Long
by InvestingScope
GASOLINE Bottom confirmed. 3-month rally ahead.Gasoline (RB1!) formed a confirmed technical bottom on the 3.5-year Support Zone and the Lower Lows of the Falling Wedge. At the same time, the 1W RSI bounced from oversold territory (below 30.00) back above its MA trend-line, confirming a bullish reversal. The previous Lower Lows bottom reached marginally above the 0.786 Fibonacci retracement level. As a result we remain committed to our long-term Target of 2.600 (below also the Lower Highs trend-line), which we expect to get hit within the next 3 months. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
1
Smart Money Positioned to LONG RBOB - COT StrategyDISCLAIMER: This is not trade advice. This is for educational purposes only to demonstrate how I am looking to participate in this market. There is significant risk involved in trading, do your own homework and due diligence. COT Strategy Long (RBOB) My COT strategy has me on alert for long trades in RBif we get a confirmed bullish change of trend on the Daily timeframe. COT Commercial Index: Buy Signal Extreme Positioning: Commercials max long of last 3 years - bullish. Small specs max short of last 3 years - bullish. OI Analysis: Multi week down move has seen OI increase. When OI increases, we need to ask "who is causing the OI increase?". In this case, OI is increasing as Commercials add to long positioning, which is bullish. ADX: Paunch forming (but not confirmed until ADX rollover). This is a significant "end of trend" indication. Front Month Premium - bullish. COT Small Spec Index: Buy Signal Supplementary Indicators: %R & Stochastic Remember, this is not a "Long Now" idea. These indicators are not timing tools. They simply tell us that this market could have a move of some significance to the upside, which we will participate in with a confirmed Daily trend change to the upside. Good luck & good trading.
NYMEX:RBV2024Long
by Tradius_Trades
GASOLINE Do-or-die moment before total collapse.Gasoline (RB1!) is approaching not only the Lower Lows trend-line from the December 12 2022 Low but also the Support Zone that has been in effect in the past 3.5 years. Naturally, this is the most critical Support Cluster of all, if the market is avoid a brutal sell-off in the coming months. That will be if Gasoline closes a month below the Support Zone. Until then, this is its last chance to stage another multi-month Bullish Leg similar to those of early 2023 and early 2024. As long as the Support Zone holds then, we will target 2.6000, which is below the 0.786 Fibonacci retracement level as well as the Lower Highs trend-line. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
RBOB Gasoline - COT & Fundamental Backed Long Trade SetupDISCLAIMER: This is not trade advice. This is not a recommendation to take a trade. This is for purely educational purposes only. RBOB (Gasoline) is "Set Up" for Longs. This does not mean I am longing this blindly right now. The tools that I am using to formulate this trade idea are not timing tools. We use technical entry techniques to time our entry. Lets get to it. Commercials are extremely long this market. The last time they were this long was in 2010, which just so happened to preclude a massive bull move in RBOB. When Commercials are at a significant extreme, we want to pay attention. Small speculators are very short. In fact, they are more short than they have been in the last 3 years. The public is generally wrong, and we want to fade whatever they are doing. Advisor sentiment is very bearish, which is actually bullish. If the advisors are telling all their clients to Sell gasoline, who is left to sell? For weeks, OI has been decreasing while Commercials have added to their long positioning. If the public and large speculators are not interested in this market, while the commercials are getting heavily long, this is bullish and indicates this market is ready for a bullish move. Cyclically, we get a bit of a mixed bag. The decennial pattern is supportive of some upside soon, and the annual cycle is supportive of a major low in September.
NYMEX:RBU2024
by Tradius_Trades
GASOLINE Strong buy opportunity.Last time we looked into Gasoline (RB1!) was exactly 2 months ago (June 06, see chart below) and the price action gave us the most optimal buy opportunity on the 0.618 Fibonacci level and hit straight on our 2.6000 Target: Since then, Gasoline declined aggressive along with most of the energy sector and even broke below the 0.618 Fib on Monday. This however is technically the ideal long-term buy entry as not only the dominant pattern remains a 2-year Channel Down but also in symmetrical terms, it appears that the price action may be on similar levels as the June 23 2023 Low. As a result, we turn bullish on Gasoline again, targeting the Internal Lower Highs trend-line at 2.7500. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
1
GASOLINE Medium-term buy opportunityGasoline (RB1!) has been on a strong Bearish Leg ever since the April 12 High, which is a Lower High for the 2-year Channel Down, and even broke below the 1D MA200 (orange trend-line). Having already touched the 0.618 Fibonacci retracement level, we expect a medium-term rebound, similar to the one on May 04 2023. The rally not only hit and broke above the 1D MA50 (blue trend-line) but also extended as high as the 0.236 Fib. As a result, we consider the current level to have a solid R/R behind it and buy, targeting 2.600 (just below the 0.236 Fib). ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
GASOLINE Short-term buy. Sell at the right time.Gasoline (RB1!) is on a 3-day bullish 1D candle run after testing and holding the 1D MA50 (blue trend-line) this week for the first time since February 05. On the wider scale, this is the Bullish Leg of the 18-month Channel Down and it is approaching its top (Lower Highs trend-line). As you can see, the Bullish Legs of this pattern share a certain degree of symmetry, so as it happened on April 12 2023, we expect the new Lower High to be priced near the 1.236 Fibonacci extension. That will also touch the internal Higher Highs trend-line. The symmetrical 1D MACD Bullish Cross of March 27 2023, was a signal that the Bullish Leg will soon come to an end. As a result, on the 1.236 Fib we will turn bearish and target the bottom of the (dotted) Channel Up at 2.6000. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
Cup and Handle Pattern in Gasoline!Next to Cocoa, Gasoline comes in 2nd place for the best total return performance in Q1 2024 amongst commodity markets. The infamous cup and handle pattern has emerged, adding a level of upside conviction in this trade. Fundamentals: Severe weather developments here in the USA and geopolitical supply chain disruption have caused refiner input costs to tick up slightly faster than normal. According to FactSet, the cost of gasoline shipments into New York Harbor next month has jumped 28% since the beginning of the year. This increase surpasses the average of 20% seen during the same period over the past quarter-century. According to Bloomberg, "In Russia, an expanded Ukrainian drone campaign has hammered key refineries. The damage has required months-long repairs and pushed the Kremlin to conserve domestic supplies by curbing fuel exports." Despite record U.S. production, these supply chain shocks have helped boost gasoline prices, thereby increasing refinery profits and margins for those companies that can remain operational. The next OPEC meeting is due on April 3rd, where further production cuts will act as another tailwind for higher crude and gasoline prices. Technicals: From a technical perspective, we can see a clear cup and handle pattern forming, which is typically a bullish chart pattern. We would need to see a break and close above $2.85 (the top of the August 15th gap lower) before testing the next major level of $2.95-$2.985. A break and close above this level is likely to lead to an upside breakout. Check out CME Group real-time data plans available on TradingView here: www.tradingview.com Disclaimers: CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
NYMEX:RB1!Long
by Blue_Line_Futures
Market maturity in wave 1 and 2! or sideways corrective patternDear analysts and traders, I hope you are doing well and are motivated for the week ahead. I wish you all the success in your business endeavors. Remember that success in trading lies in consistently defining and sticking to your rules. As someone interested in the Elliott Wave Principle, I find it to be an invaluable tool for market analysis. I have developed my approach by combining this principle with my personal experience and by considering different scenarios that are likely to occur in the market. It should be noted that I do not like to be surprised in the market, and that's why I have different market prospects. I follow them to be sure and recognize the structure that is forming so that I can 100% recognize it. I will share my analysis with you, but please note that I am not providing any buy or sell signals. My perspective on idea analysis is completely unbiased, so if the idea analysis meets your standards, you can use it as a guide to make an informed decision. I have attached my previous analysis of the same market so that you can compare and see the differences. All the details of my analysis are clearly labeled, making it easy for you to understand. However, having a basic familiarity with the Elliott Wave Principle theory will help you understand the analytical idea more easily. I have been studying the Elliott Wave Principle for almost three years now, and over time, my understanding of this knowledge and experience has grown. What I have achieved so far is the legacy of a genius called Ralph Nelson Eliot, and I am really happy with my progress. May peace be upon him. Thank you for your support so far. I will always remember your kindness. Please share your comments and criticisms with me. I hope my analysis will be useful to you in your business journey, and I wish you all the best. Sincerely, Mr. Nobody
NYMEX:RB1!Long
by mehdi47abbasi79
GASOLINE Sell signal approachingGasoline (RBOB1!) is staging a short-term rebound towards the top of the (dotted) Channel Up ahead of a 1D Golden Cross. The 18-month pattern is a Channel Down and last time we saw those technical dynamics was during the previous Bullish Wave/ Channel Up that peaked on the 1.236 Fibonacci extension (April 12 2023) exactly on the Golden Cross and then corrected below the (dotted) Channel Up. As a result, we are starting to take a bearish stance on Gasoline, targeting 2.400 (bottom of the Channel Up). ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Short
by TradingShot
Corrective sideway structure?!!!Greetings Dear analysts and traders, I hope you are doing well and are motivated for the week ahead. I wish you all the success in your business endeavors. Remember that success in trading lies in consistently defining and sticking to your rules. As someone interested in the Elliott Wave Principle, I find it to be an invaluable tool for market analysis. I have developed my approach by combining this principle with my personal experience and by considering different scenarios that are likely to occur in the market. It should be noted that I do not like to be surprised in the market, and that's why I have different market prospects. I follow them to be sure and recognize the structure that is forming so that I can 100% recognize it. I will share my analysis with you, but please note that I am not providing any buy or sell signals. My perspective on idea analysis is completely unbiased, so if the idea analysis meets your standards, you can use it as a guide to make an informed decision. I have attached my previous analysis of the same market so that you can compare and see the differences. All the details of my analysis are clearly labeled, making it easy for you to understand. However, having a basic familiarity with the Elliott Wave Principle theory will help you understand the analytical idea more easily. I have been studying the Elliott Wave Principle for almost three years now, and over time, my understanding of this knowledge and experience has grown. What I have achieved so far is the legacy of a genius called Ralph Nelson Eliot, and I am really happy with my progress. May peace be upon him. Thank you for your support so far. I will always remember your kindness. Please share your comments and criticisms with me. I hope my analysis will be useful to you in your business journey, and I wish you all the best. Sincerely, Mr. Nobody
NYMEX:RB1!Long
by mehdi47abbasi79
GASOLINE Buy signal if 1D MA50 breaks.Gasoline (RB1!) has had a strong 3-day rise last week but that is still contained within the bearish barriers of a Channel Down. However during this whole pattern, the 1D RSI has been developing a Channel Up, hence a Bullish Divergence for the price. As a result, we will look to the 1D MA50 (blue trend-line) for a break-out signal and if the price closes a 1D candle above it, we will buy and target the 1D MA200 (orange trend-line) with an early target projection at 2.4250 (but of course this can move depending on its course). Technically, we can even see the rise extending to +30.00% from the bottom or even slightly higher, as the two major bullish runs of 2023 have risen by +34.60% and +32.60% respectively. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NYMEX:RB1!Long
by TradingShot
2
Gasoline Futures Fractals from 2000s Bull RunThe main assumption, that is unlikely to happen, assumes the coming wave will be proportional to the 2004-2008 rally. This is based off of the move out of 2020 being over 6 times the trough to peak percent gain during 2002-2003. The lead in fractals and Bollinger Band behavior are similar. We are once again in an expansionary phase of real estate. General risk is arguably more elevated globally. This cycle could be quicker, if money velocity increases massively. The liquidity providers are more than capable of doing this.
NYMEX:RB1!
by triplej333
2
🔝 US Gas prices become more affordable as key breakdown is hereAmericans could breathe a sigh of relief with gas prices set to be more affordable this year. US gas prices hit their highest 52 Weeks in August and September ahead of Labor Day, with the national average standing at $3.82 a gallon FRED:GASREGW , per AAA Gas Prices . Gasoline prices hit summertime levels in over a decade even as the driving season comes to a halt, as a result of rising crude-oil prices TVC:USOIL driven by production cuts. Brent crude TVC:UKOIL , the international benchmark, jumped to $90 a barrel earlier is September for the first time in 2023 after both Saudi Arabia and Russia extended oil production cuts of 1.3 million barrels a day through December 2023 in a bid to maintain price stability. Higher US gas prices NYMEX:RB1! are a problem for the Federal Reserve, which has been trying to tame historically high inflation. The central bank has already hiked interest rates ECONOMICS:USINTR by more than 500 basis points since March 2022, helping lower the pace of consumer-price increases to 3.2% in July from last year's highs above 9%. But the jump in fuel prices is threatening to derail the progress the Fed has made in taming inflation. As a result, just after September, 2023 FOMC meeting market participants are waiting one or maybe two dovish Fed's Rate price actions in 2024. At the same time before September, 2023 Federal Reserve meeting, market expectations were about three cuts, near to four. (up to 100 b.p.). Meanwhile juts a take a look what technical picture in RBOB Gasoline futures RB1! price says. Near the middle of August, 2023 Gasoline futures prices turned massively down, due to seasonal backwardation in RBOB futures contracts, where autumn RBOB futures contracts are usually to be trade lower vs. summer RBOB futures contracts. Moreover, in the last day of Q3'23 RBOB futures price turned firmly lower, breaking down the major trendline support that was actual all the time from disinflationary Covid-19 era. Moreover weekly SMA(52) is broken down also. In a conclusion, I have to say that retail gasoline prices are usually to follow the major trend, within one or up to two months.
NYMEX:RB1!
by Pandorra
Will RBOB Gasoline Hold Support? RBOB has witnessed significant selling since its late August highs, with looming economic growth fears and potential consumer weakness at play. However, recent jobs data paints an encouraging near-term picture for RBOB. Recent Economic Developments: Last week’s figures from the Atlanta Fed GDP Now model for Q4 reported a growth rate of 1.2%, falling short of the expected 1.8%. Last week's JOLTs numbers for job openings were at 8.73 million, below the expected 9.3 million, and ADP Non-Farm Payrolls on December 6th registered 103k, lower than the anticipated 130k. Initially signaling a weakening labor market, these signs prompted expectations of interest rate cuts as early as March 2024. However, Friday's unemployment and nonfarm payrolls figures surprised to the upside, showing strength in job creation, pushing interest rate cuts back to May of 2024. The Goldilocks Narrative: The Goldilocks narrative for risk assets appears to be in play, with job openings possibly fewer, but job creation and high employment still evident. Michigan consumer sentiment reached its highest level since September, and 1-year and 5-year inflation expectations were lower. Both crude and gasoline act as coincident and forward-looking commodities. These recent figures suggest consumers are more optimistic about inflation and the economy's direction, indicating continued high gasoline demand. Major Support: Major support for RBOB is evident at $2.00-$2.08/gallon. A break and close below this level could lead to further liquidation. Conversely, the 21-Day EMA will serve as overhead resistance in the near term; a break and close above this level would be imperative for a potential reversal. Check out CME Group real-time data plans available on TradingView here: www.tradingview.com Disclaimers: CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
NYMEX:RB1!
by Blue_Line_Futures
Primer on Crude Oil Crack SpreadEver dreamt of being an oil refiner? Fret not. You can operate a virtual refinery using a combination of energy derivatives that replicates oil refiner returns. Crude oil is the world’s most traded commodity. Oil consumption fuels the global economy. Crude is refined into gasoline and distillates. Refining is the process of cracking crude into its usable by-products. Gross Processing Margin (GPM) guides refineries to modulate their output. Crack spread defines GPM in oil refining. This primer provides an overview of factors affecting the crack spread. It delves into the mechanics of harnessing refining spread gains using CME suite of energy products. UNPACKING THE CRACK SPREAD Crack spread is the difference between price of outputs (gasoline & distillate prices) and the inputs (crude oil price). Cracking is an industry term pointing to breaking apart crude oil into its component products. Portfolio managers can use CME energy futures to gain exposure to the GPM for US refiners. CME offers contracts that provide exposure to WTI Crude Oil ( CL ) as well as the most liquid refined product contracts namely NY Harbor ULSD ( HO ) and RBOB Gasoline ( RB ). Crude Prices Crude oil prices play a significant role in determining the crack spread. Refining profitability is directly impacted by crude oil price volatility which is influenced by geopolitics, supply-demand dynamics, and macroeconomic conditions. Higher oil prices lead to a narrowing crack spread. Lower crude prices result in wider margins. Expectedly, one leg of the crack spread comprises of crude oil. Gasoline Prices Gasoline is arguably the most important refined product of crude oil. Gasoline is not a direct byproduct of the distillation process. It is a blend of distilled products that provides the most consistent motor fuel. Gasoline prices at the pump in the US vary by region. Price differs due to differences in state taxes, distance from supply sources, competition among gasoline retailers, operating costs in the region, and state-specific regulations. CME’s RBOB Gasoline contract provides exposure to Reformulated Blendstock for Oxygenate Blending (RBOB). It is procured by local retailers, who blend in their own additives and sell the final product at pumps. RBOB is blended with ethanol to create reformulated gasoline. It produces less smog than other blends. Consequently, it is mandated by about 30% of the US market. RBOB price is thus representative of US gasoline demand. Each CME RBOB Gasoline contract provides exposure to 42,000 gallons. It is quoted in gallons instead of barrels. The contract size is equivalent to one thousand barrels like the crude oil contract. Distillate Prices Distillate or Heating Oil is another important refined product of crude oil. Distillate is used to make jet fuel and diesel. Demand for distillate products is distinct from gasoline demand. A substantial portion of the North-East US lack adequate connection to natural gas. Hence, the region depends on HO for energy during winters making HO sensitive to weather. CME NY Harbor ULSD contract ("ULSD”) provides exposure to 42,000 gallons of Ultra-low sulphur diesel which is a type of HO. ULSD contract is also equivalent to one thousand barrels. Chart: ULSD Price Performance Over the Last Twenty Years. TRADING THE CRACK SPREAD The crack spread can be expressed using the above contracts in three distinct ways: 1) 1:1 SPREAD This spread consists of a single contract of CL on one leg and a single contract of one of the refined products on the other. This spread helps traders to express their view on the relationship between single type of refined product against crude oil. It is useful when price of one of the refined products diverges from crude oil prices. 1:1 spread is also useful when there are distinct conditions affecting each of the refined products. 2) 3:2:1 SPREAD This spread consists of (3 contracts of CL) on one leg and (2 contracts RBOB + 1 contract of ULSD) on the other leg. The entire position thus consists of six contracts. It assumes that three barrels of crude can be used to create two barrels of RBOB and one barrel of HO. This trade is better at capturing the actual refining margin. It is commonly used by refiners to hedge their market exposure to crude and refined products. 3:2:1 spread is used by investors to express views on conditions affecting refineries. 3) 5:3:2 SPREAD Spread consists of (5 contracts of CL) on one leg and (3 contracts of RBOB + 2 contracts of heating oil) on the other leg. This spread captures the actual proportions from the refining process. However, it is much more capital-intensive. FACTORS IMPACTING CRACK SPREAD Seasonality, supply-demand dynamics, and inventory levels collectively impact crack spreads. Seasonality Mint Finance covered seasonal factors affecting crude oil prices in a previous paper . In that paper, we described that crude seasonality is influenced by variation in refined products demand. In summer, gasoline demand is higher, and, in the winter, distillate demand is higher. Seasonal price performance of the three contracts is distinct leading to a unique seasonal variation in various crack spreads. Summary performance of the three spreads is provided below. Chart: Seasonal price performance of Crude, its refined products, and their spread (excluding years 2008, 2009 and 2020 in which extreme price moves were observed) Refiners strategically time their operations based on seasonal trends, ramping up refinery capacity ahead of peak demand in summer and winter. This involves building up inventories to meet anticipated high demand. However, this preparation often results in a narrowed spread just before peak utilization. As the spread reaches its lowest point, refiners take capacity offline for maintenance. Subsequently, crack margins begin to expand as refined product supplies dwindle, aligning with decreased crude oil consumption. This results in a gradually increasing spread through high consumption periods. Supply/Inventories Supply and inventories of crude oil and refined products influence crack spreads. When inventories of refined products remain elevated, their prices decline narrowing the spread. When the production and inventory of crude oil is elevated, its price declines leading to a widening spread. On the contrary, low inventories of refined products can lead to a wider crack spread and low inventories of crude oil leads to a narrower crack spread. Demand Refinery demand has a self-balancing effect as higher refining requires higher consumption of crude which acts to increase crude oil prices. Demand for crude oil and refined products is broadly correlated. However, there are often periods when demand diverges on a short-term scale. Economic activity and available supplies drive demand for refined products. During periods of high economic growth, refined product consumption is robust pushing their price higher. Demand for refined products can precede or lag demand for crude oil from seasonal as well as trend-based factors. This lag can be identified using the crack spread. Sharp moves in crack spread pre-empt moves in the underlying which act to normalize the spread. CURRENT CONDITIONS There are two trends defining the crack spread currently: 1) Divergence in demand & inventories of gasoline and distillates: Low demand for gasoline is evident due to expectations of an economic slowdown while gasoline inventories remain elevated. Though, distillate consumption remains high as inventories are declining and lower than the 5-year average range. Chart: Divergence in inventories of distillate and gasoline (Source – EIA 1 , 2 ). Moreover, inventories of gasoline and distillates are higher than usual. Both factors together have led to a gloomy outlook for refined product demand. Gasoline stocks have started to increase while distillate stocks are still declining. When refined product inventories are elevated investors can position short on the crack spread in anticipation of ample supply. Conversely, if refined product inventories are low, investors can position long on the crack spread. Chart: Divergence in refined product inventories in US (gasoline rising and distillate declining). 2) Declining crude price and tight supplies: In September, Saudi Arabia and Russia announced supply cuts extending into January. Globally, this led to a supply deficit of crude oil. Supplies of crude in the US was particularly stressed as refiners increased utilization to build up inventories while margins were high and exacerbated by a pipeline outage. Chart: Crude Oil inventories in US have stabilized in September and October. Following increase in oil prices, refining activity has slowed, and supplies have become more stable. When inventories of crude are stable or elevated, it indicates less demand from refiners. Investors can opt to position long on the crack spread anticipating ample crude supply. Chart: US Refinery Utilization and Crude Inputs have slowed in October. Although, crude oil supply cuts from Saudi are going to continue until January 2024, there is no longer a deficit as consumption has slowed down. Together, both trends have caused a sharp collapse in the crack spread. Value of the 3:2:1 crack spread has declined by 50% over the past month. Prices of refined products have been affected more negatively by low demand than crude oil. Inventories and supply situation for refined products is more secure than crude oil. Still, seasonal trends suggest an expansion in crack spread once refined product inventories start to be depleted. HARNESSING GAINS FROM CHANGES IN CRACK SPREAD Two hypothetical trade setups are described below which can be used to take positions on the crack spread based on assessment of current conditions. LONG 3:2:1 SPREAD Based on (a) sharp decline in crack spread which is likely to revert, and (b) seasonal trend pointing to increase in the crack spread, investors can take a long position in the crack spread. This consists of: • Long position in 2 x RBF2024 and 1 x HOF2024 • Short position in 3 x CLF2024 The position profits when: 1) Price of RBOB and ULSD rise faster than Crude. 2) Price of Crude declines faster than RBOB and ULSD. The position looses when: 1) Price of Crude rises faster than RBOB and ULSD. 2) Price of RBOB and ULSD declines faster than Crude. • Entry: 63.81 • Target: 79.12 • Stop Loss: 55.73 • Profit at Target: USD 45,930 ((Target-Entry) x 1000 x 3) • Loss at Stop: USD 24,240 ((Stop-Entry) x 1000 x 3) • Reward/Risk: 1.89x LONG 1:1 HEATING OIL SPREAD Based on relative bullishness in distillate inventories plus stronger seasonal demand for distillates during winter, margins for refining heating oil will likely rise faster than gasoline refining margins. Focusing the expanding crack margin on a 1:1 heating oil margin spread can lead to a stronger payoff. This position consists of Long 1 x HOF2024 and Short 1 x CLF2024 . The position profits when: 1) Price of ULSD rises faster than Crude. 2) Price of Crude declines faster than ULSD. The position will endure losses when: 1) Price of Crude rises faster than ULSD. 2) Price of ULSD declines faster than Crude. • Entry: 36.15 • Target: 42.79 • Stop Loss: 32.3 • Profit at Target: USD 6,640 ((Target-Entry) x 1000) • Loss at Stop: USD 3,850 ((Stop-Entry) x 1000) • Reward/Risk: 1.72x KEY TAKEAWAYS Crack spread refers to the gross processing margin of refining (“cracking”) crude oil into its by-products. Refined products RBOB and ULSD can be traded on the CME as separate commodities. Both are representative of demand for crude oil from distinct sources. There are three types of crack spread: 1:1, 3:2:1, and 5:3:2. a. 1:1 can be used to express views on the relationship between one of the refined products and crude. b. 3:2:1 can be used to express views on the refining margin of refineries. c. 5:4:3 can give a more granular view of proportions of refined products produced at refineries but is far more capital-intensive. Crack spreads are affected by seasonality, supply, and inventory levels of crude and refined products, as well as demand for each refined product. A low-demand outlook for refined products of crude is prevalent due to expectations of an economic slowdown. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
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