Relative value within the barrel

The key stats from DOE yesterday are 1) Crude stocks in US are starting to move. Cushing stocks are not building anymore as storage is probably very much full and imports of crude are no longer astronomical. 2) Gasoline demand/supply dynamics in the US is very bullish. This is not a one off and implied demand on a 4 week moving averge basis is now higher than last year, while stocks are drawing for this week in which typically it is a build. Both are very positive for the Gasoline season this year in spite of talks of demand destruction globally. Substitution of flying holidays by driving holidays are probably taking place increasingly in this environment.

Distillates demand/supply outlook is ugly, and will continue to stay ugly as we head away from winter peaks and stocks keep piling up. It may be the right time to get into the ever popular RBOB-Heat spread even at these level. SFOT understands that in order to achieve a higher gasoline yield, you would need to input sweet crude into complex refineries and the strength of gasoline would be a big boost to sweet grades like WTI over sour ones. In such a scenario, sweet/sour differential should widen out and it has begun to happen in both US and international crude like Brent-Dubai. SFOT will reassess his sweet/sour trade at this juncture but he is exiting his short WTI-Brent differential trade with a small loss as the dynamics that led him into the trade is shifting.

Gasoline Yield

Rbob-Heat in N9

Otherwise, as equities seems to have found its bottom and begins to recover from the mess of the last week, risk aversion eases off ( usd/jpy higher, gold lower, ), crude prices can continue to grind higher and SFOT holds his lengh in Z9 Brent as well as long M9Z9 Brent + Gasoil in europe.