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.
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Gasoline
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.
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.
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UAGASP / UKRAINIAN GAS PRICEUAGASP/USD Analysis with Geopolitical and Economic Context:
The chart reflects the average price of gasoline in Ukraine denominated in USD. The key dates highlighted on the chart are critical for understanding potential future shifts in gasoline prices based on global and local factors.
Historical Context:
• Long-Term Average Price: Historically, the average price of gasoline globally has been between $1 and $1.3 per liter. This benchmark serves as a reference point when analyzing the current and projected prices in Ukraine.
• Current Trends: The chart shows a significant rise in gasoline prices in recent years, correlating with global economic shifts, supply chain disruptions, and geopolitical tensions, particularly involving energy-rich regions.
Key Dates and Potential Influences:
1. December 2026 (12/01/26) - Potential Price Surge:
• Scenario: By the end of 2026, several factors could drive a significant increase in gasoline prices. These include geopolitical tensions in major oil-producing regions (such as the Middle East or Russia), global economic recovery post-pandemic leading to higher demand, and potential supply constraints.
• Impact on Prices: The price of gasoline could surpass historical averages, driven by both increased global oil prices and local factors like currency depreciation, higher transportation costs, and increased excise taxes.
2. October 2029 (10/01/29) - Stabilization or Decline:
• Scenario: By late 2029, technological advancements, a potential increase in global oil supply, or shifts towards alternative energy sources could stabilize or even reduce gasoline prices. Additionally, Ukraine’s economic situation might improve, strengthening the Hryvnia against the USD and mitigating price increases.
• Impact on Prices: Prices might stabilize, returning closer to the historical average of $1-$1.3 per liter, assuming reduced demand for gasoline due to a potential increase in electric vehicle (EV) adoption and alternative energy sources.
Global and Local Factors Influencing Gasoline Prices:
• Global Oil Prices: The price of gasoline is heavily influenced by global oil prices, which can fluctuate due to geopolitical events, OPEC decisions, and shifts in global demand.
• Currency Exchange Rate: The strength of the Hryvnia against the USD plays a crucial role in determining local gasoline prices. A weaker Hryvnia would increase the cost of imported oil, leading to higher gasoline prices.
• Transportation and Distribution Costs: Rising transportation costs, driven by higher fuel prices or logistical challenges, could further increase the price of gasoline in Ukraine.
• Government Policies: Changes in excise taxes, subsidies for alternative energy, or regulations aimed at reducing carbon emissions could impact gasoline prices. Higher taxes on fossil fuels could drive prices up, encouraging a shift towards more sustainable energy sources.
Consider the Shift to Electric Vehicles (EVs):
With the potential for sustained high gasoline prices and increasing environmental concerns, it might be time to consider the benefits of switching to electric vehicles. Tesla, a leading EV manufacturer, represents a significant shift in the automotive industry towards cleaner, more sustainable transportation options.
• Cost Savings: Over the long term, EVs could provide significant savings on fuel costs, particularly if gasoline prices remain high.
• Environmental Impact: Reducing reliance on gasoline can contribute to lower greenhouse gas emissions, aligning with global efforts to combat climate change.
• Technological Advancements: Tesla and other EV manufacturers continue to innovate, improving battery technology, increasing vehicle range, and reducing the overall cost of ownership.
Conclusion and Reader’s Consideration:
As gasoline prices in Ukraine and globally continue to fluctuate, driven by a complex mix of geopolitical, economic, and environmental factors, it raises an important question for consumers:
“Is it time to transition to electric vehicles?”
Exploring options like Tesla and analyzing the broader EV market could be a forward-thinking strategy in an era of rising fuel costs and increasing environmental awareness. The shift towards EVs not only offers potential cost savings but also supports global sustainability goals.
What are your thoughts? Is now the right time to consider going electric?
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.
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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).
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Dangerous TradeThis trade has bad idea written all over it. Don’t try this at home. Not investment advice. etc. It has come to my attention that HO i.e.. NY Harbor heating oil which is a proxy petroleum distillate for diesel has gotten more expensive than gasoline in recent years many times and that it has done so in an aggressive manner quite a few of those times. This aggression is easily captured by charting the spread between HO and RB. RB is refinery gasoline. The formula for the spread is HO1! - RB1!. I’ve multiplied it by the contract multiplier of 42000 because each contract represents 42000 gallons and the price of each contract is per gallon. The number on the price axis therefore shows exactly how much money could have been made or lost with this spread. The trade idea is to go long HO and short RB once the spread closes positive twice ie. once diesel contracts start trading higher than gasoline contracts for more than one day within a 2-week period. The alternate trade idea is to just go long HO when the spread turns positive. Opex is on June 25th for both HO and RB July contracts so that’s something to be aware of. July contracts HON 2024 and RBN2024 are the contracts of interest until that options expiration date is reached. You’ll need approximately $20k margin to place this trade, as each contract is currently worth around $100k.
This trade is super dangerous because the spread is highly volatile. Don’t do it.
The reward/risk is 7.15. The “if nothing goes catastrophically wrong” risk is $4200 and the “congratulations, jack**s!” reward is $30,000.
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.
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Sideway pattern? or the beginning of a bull market rallyDear 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
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
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).
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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
Continuation of the downward trendDear Friends,
I hope this message finds you well and that you're having a great start to the week. I wish you success in your business endeavors.
As someone interested in the Elliott Wave principle, I find it a valuable tool for analyzing the market. I have developed my approach by combining this principle with my personal experience and by considering various scenarios that are likely to occur in the market.
I am sharing my analysis with you, but please note that I am not providing any buy or sell signals. I aim to share my unbiased analysis with you so that you can use it as a guide to make informed decisions.
The first analysis is Litecoin
In the attachment, you will find my previous analysis of the same market, so you can compare and see the differences. All the details of my analysis are clearly labeled, making it easy for you to understand (although 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. With time, my understanding of this knowledge and experience has increased. What I have achieved so far is a legacy of a genius named Ralph Nelson Elliott, and I am truly satisfied with my progress. May his soul rest in peace and his memory be cherished.
Thank you for your support so far. I am grateful and will always remember your kindness. Please feel free to share your thoughts and feedback with me.
I hope my analysis will be useful to you in your business journey, and I wish you all the best.
Sincerely,
Impulse pattern?? Three corrective waves and then a fallDear FRIEND,
I hope you're doing well and that the new year has started on a good note for you. I wish you success in your business endeavors and a happy new year with your loved ones.
As someone interested in the Elliott Wave principle, I find it to be a valuable tool for market analysis. I have developed my approach by combining this principle with my personal experience and by considering various scenarios that are likely to occur in the market.
I am sharing my analysis with you. However, please note that I am not providing any buy or sell signals. My goal is to share my unbiased analysis with you so that you can use it as a guide to make informed decisions.
In the attachment, I have included my previous analysis of the same market so that you can compare and see the. All the details of my analysis are clearly labeled, making it easy for you to understand (although 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. With time, my understanding of this knowledge and experience has increased. What I have achieved so far is a legacy of a genius named Ralph Nelson Elliott, and I am truly satisfied with my progress. May his soul rest in peace and his memory be cherished.
Thank you for your support so far. I am grateful and will always remember your kindness. Please feel free to share your thoughts and feedback 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)
Energy Stocks: Macro Fib SchematicsThis idea beholds 6 of the largest Energy companies in the world.
(Shell, Chevron, Exxon, BP, Duke, and OXY Petroleum.)
These macro schematics have been crafted through meticulous Fibonacci techniques.
I've laid every one on a 3 month timeframe starting at 1988. History buffs will understand the time reference to the rough "start" of Middle Eastern conflicts from the West and the rise of the price of "fossil fuels".
I'm not begging anyone to understand this genius mastery of Fib tools. You either see it or you don't.
I've linked my ENERGY COMMODITIES idea below for more analysis.
Impulse Wave Now Three Waves CorrectiveHello there,
I hope you're having a great start to the new year. I wish you all the best in your trading ventures and a happy new year with your loved ones.
I'm a fan of the Elliott wave principle, which I find interesting and useful for market analysis. I've developed my analytical approach by combining this principle with my personal experience and considering various scenarios that are likely to occur in the market.
Although I'm going to share my analysis with you, please note that I won't be providing a buy or sell signal. My goal is to share my unbiased analysis so that you can use it as a guide to make an informed decision.
To give you confidence in my analysis, I'll always share my previous analysis from the same market so that you can compare. All the details of my analysis are clearly labeled, making it easy for you to understand.
I hope my analysis will be useful to you in your business journey, and I wish you the best.
I'm waiting to hear from you. Finally, I'd like to remind you that like-mindedness and support, comments, and likes are the most important pillars of progress, like support points in the financial markets. They give me the energy to continue and share more ideas with you.
Sincerely,
Gasoline and oil, similar corrective structureHello!
I am a big fan of the Elliott wave principle, which I find very interesting and useful for market analysis. I have developed my analytical approach by combining this principle with my personal experience and considering various scenarios that could occur in the market.
While I would like to share my analysis with you, please note that I am not providing a buy or sell signal. My primary intention is to share my unbiased analysis so that you can utilize it as a guide to make an informed decision.
To build your confidence in my analysis, I always share my previous analysis from the same market so that you can compare and see the progress. All the details of my analysis are clearly labeled, which should make it easy for you to understand.
I hope that my analysis is useful to you in your business journey, and I wish you all the best.
I am looking forward to hearing from you. Lastly, I would like to mention that like-mindedness and support, comments, and likes are the most important pillars of progress, just like support points in the financial markets. They give me the energy to continue and share more ideas with you.
Sincerely
The first analysis of Gasoline
Oil Chart Analysis Idea
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.
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🔝 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.
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.
Oil, where are you headed?
This week our eyes fall on the crude oil market. From our previous article, Cracking the Crack Spread , we know that crude oil and gasoline hold a special relationship. Since gasoline is extracted from crude oil, the spread between the two futures should not diverge too much. Yet, in the past few weeks, we have observed a deviation in their prices with the Crude Oil/Gasoline ratio peaking.
Futures Fundamentals
Open interest refers to the number of open contracts in the market. It serves as a measure of liquidity, activity and more importantly, interest in the security. While trading volume refers to the number of contracts traded each day.
The decline in both prices and open interests indicates the liquidation of long positions. Together with a low trading volume, this can indicate a bear market.
Economic Outlook
Although the federal reserve (Fed) is likely done with its hikes in this hiking cycle, it intends to keep interest rates higher for longer. Coupled with continued tightness in the labor market, sticky inflation and inflating cost of debt, growth would be dampened.
One way to back up this view is to look at the US Purchasing Managers’ Index (PMI). The PMI is widely used as a leading indicator to anticipate changing economic trends. Furthermore, there tends to be a positive association with PMI and commodities year-on-year change. Given the latest PMI value, it points to a negative economic outlook, with year-on-year crude oil prices playing catch up.
It is good to be mindful that if the Fed has indeed concluded its hiking cycle, there is a greater likelihood for the dollar to weaken rather than strengthen. As crude oil is quoted in USD, a weaker dollar would lead to a more expensive contract. Therefore, there are upside risks to crude oil prices.
Supply Factors
US crude oil production reaches record high levels. In conjunction with other non-OPEC countries’ record production, they have been upholding the supply despite facing cuts from OPEC. This could possibly explain why oil prices fell on Oct 4th when OPEC confirmed its cuts until the end of the year.
However, we also see the number of oil rigs in the US on a decline, which may hinder any higher levels of production. Also, there is the debate whether production from non-OPEC countries will be outpaced by OPEC’s cut, leading to the materialization of a supply deficit.
Volatility
Historically, the energy sector is known for its volatility. In comparison to the S&P 500, crude oil appears to be more volatile. In the chart above we look at the maximum year-on-year change in the S&P500 and marked that range on the year-on-year crude oil prices. Here, the wider range that crude oil trades becomes much more obvious compared to the S&P 500. This effect could likely stem from the fact that oil, unlike equities, is affected by a myriad of complex factors at any given time, from supply/demand to geopolitical, environmental and many more.
Gold and crude oil tend to be positively associated. Rising oil prices place upward pressure on inflation leading to precious metals to appreciate as investors flock to “store of value” assets. Other than store of value, gold also acts as a form of safe haven asset, where investors take shelter in gold against uncertainty. With gold now trading significantly higher than oil, it appears that markets are expecting higher levels of fear and uncertainty, which could translate to higher volatility in oil.
So where is oil heading?
Here we find ourselves in a limbo, considering potential breakout risk from geopolitical tensions the downside risk from the likely turnover of the economy, a fading PMI pointing to oil weakness, and overextended oil prices when looking at the spread complex with gasoline. In times like this, when risk could extend on either side, a long straddle options position could allow us to harness profits in the event of a volatile move, in either direction.
To express our view, we can set up long straddle position by buying one at-the-money call and put option that expire in Feb 2024. Given the last price of CLZ3 is 82, we will purchase the two options at the strike price of 81.50. The premiums for the call and put options are 5.39 and 4.89 points respectively. In total, our premium would be 10.28 points.
As a rough gauge of the potential for profitability, it might help to look at the volatility in oil prices. For the selected strike, ignoring the effects of options Greeks, the price on expiration would have to move roughly 12.7% in either direction. In the chart above, the bottom figure shows the rolling 3-month change in oil prices, with the red band marking the 12.7% higher & lower range. Here we see oil continually swinging past this level, highlighting the potential for this strategy to play out.
In this setup, it should also be noted that the maximum loss on the position is the premium paid on the initial setup, which is 10.43 points. The breakeven levels are above 92 or below 71 on option expiration day, as seen in the chart above. Each 0.01 point move in crude oil options is for 10 USD.
CME also has a handy strategy simulator allowing you to construct the option strategy and simulate future prices on your position's P&L. Above are two potential scenarios if the price of crude oil remains close to flat on expiration day, or if it trades lower on expiration day, alongside a diagram showing the effect on the option position's P&L.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. 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:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
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www.cmegroup.com
GASOLINE Excellent short-term buy opportunity.Gasoline (RB1!) is on a minor pull-back on the 1D chart, below both the 1D MA50 (blue trend-line) and the 1D MA200 (orange trend-line). The 1D RSI has been rebounding since the October 05 oversold bottom, something that has done the exact same way the previous two times on May 04 2023 and December 08 2022. Both of those fractals have (so far) similar structure with the current sequence since the September 13 High, and both reached at least their 0.618 Fibonacci retracement level on those rebounds.
As a result, we are taking advantage of the current pull-back to get a more comfortable low risk buy and target 2.500 (marginally below the 0.618 Fibonacci level).
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