Let’s first start out with the technical aspect of trading the Feb RBOB Gasoline Contract. On a daily chart, the Market has pulled back to an area of support and consolidation around the 1.46-1.50 level. This is an area we traded for most of the month of October. As of 12/7/16 we are trading at 1.52. In my opinion we can expect a break of this level with a move toward the 1.42 area, and further downside will be warranted going into 2017. The MACD has crossed on November 21st, and a cross after this will confirm a bearish trend. If we were to break the 1.42 level we can then open the door to the 1.35 level which coincides with the 200 day M/A as well as the middle of the range for all of September.
I can back up the technical side of this trade with the fundamentals (at least in the near term). Right now refinery utilization rate is solid at 90.4%. The number of idle refineries is all the way down to 130, from a high of 713 back in April. This means that we are able to make much more product than 8 months ago. The EIA just came out with their weekly change in gasoline inventories, at a much larger than expected build of 3.4M barrels of product, verses 2.1M last week. Another thing to consider is that crude oil has pulled back from the $52 and change high to around the $50 level. There is much skepticism that the OPEC deal will actually merit a difference in global oil supply. Any cut is likely to be wiped out by more US production. I believe that a retest of the $40 dollar per barrel in crude is more likely than a retest of the recent high of 52.74. With this pullback will most likely put much pressure on gasoline for the next month or two.
If you would like more information on this trade or another way of structuring it please contact me directly at 312-373-5383.
Market Strategist II
Josh began his career in May of 2013 after graduating from Purdue University, West Lafayette. He received a degree in Agricultural Economics, with a Certificate in Entrepreneurship. He started at Paragon Investments in Kansas, the heart of wheat country. While working there he developed long term relationships with corn, soybean, and wheat producers, speaking with them on a weekly basis. His goal was to market their physical production more effectively through tracking basis, as well as hedge their exposure in the grain and cattle markets through a variety of futures and option strategies. He then moved to Florida to work for PFL Petroleum, a physical biofuels brokerage, and gained significant exposure to OTC and physical energy markets. Trading has been a passion from day one of his career. In his free time he stays active in downtown Chicago, attends sporting events, and holds an FAA Private Pilot’s License and flies Cirrus and Cessna aircraft regularly.