1) US retails sales headline numbers were appalling. Digging deeper into the numbers where energy is concerned, gasoline station receipts were down around 35%. However, note that prices were around 50% higher on average in March last year vs this year, which from simple calculation will give us an increase demand of Gasoline by 15% YoY. This is just the first step of the equation. SFOT pointed out in one of his first few posts that he suspect gasoline demand will be up vs Jet fuel( part of middle distillates) simply due to consumers switching their holiday plans from flying to driving and this is exactly what has happened. While he is unable to get a number for March 2009 for comparison, the latest numbers dating back to 2008 december does not bode well for Jet demand going forward. Moreover, the latest results from Europe and UK air travel can be a guideline for US travels in this environment, and YoY comparisons for March is about 11% lower traffic on average. Jet fuel has definitely been the one product losing the most over the past 6 months or so, but it has since become the most attractive product to store as the contango in Jet stays at this level (around USD9/ton) and some support is seen in this product. Perhaps any more strength in this should be sold into as we approach the summer and airlines faces the horrible truth that air travel is going to be destroyed and charter airlines suffer the most.
European Jet crack to Brent
2) API numbers are weak again. For 2 weeks in a row, API shows a massive build in crude and this time a draw in Gasoline and build in Distillate. Examining the number in crude closely does not seem to make sense at first glance. Crude stocks build by around 930kb/d, imports were down by 811kb/d, production up 137kb/d while refineries cut runs by 380kb/d. This leaves an unexplained 400+kb/d to make up. SFOT can only attribute this to floating storage coming onshore. Indeed he has heard that a lot of floating storage has been cleared, mostly coming onshore for storage purposes. The more glaring number here would be the run cuts, which is a major signal that demand destruction is still going on and no end is in sight. Over the past few months, the main reason for cracks and prices recovering are the fact that contango is proving so attractive that physical houses has so much room to play with to find products for storage. However, there is also the emergence of funds and retail investors having a go at the reflation story, hence buying the back end of the curve. Only thing that still make sense now is be short the prompt vs the back and this is exactly what SFOT has at the moment. Rationality is however a massive pain trade as markets seems to stay irrational longer and longer these days.
Of course tonight we have the big match, Arsenal vs Villareal. All non Man utd fans would agree with me they have been extremely lucky in the past 2 premier league matches, but tonight i would hope for their luck to run out, and Arsenal to get a little more of those luck given we are missing a few key players. Sit tight, enjoy. We may not get an 8 goal feast per match, but you never know.
Posts
Morning SFOT!
ReplyDeleteJust wanted to point out the effect of asymmetric demand w.r.t prices. Traditional economists assume price vs. demand are elastic in a symmetric fashion where a unit price change leads to the same unit change in demand irrespective of prices going up or down. However, this is a false assumption, and its a well known fact that we have higher propensity to spend if prices go down and vice versa. I for one have observed from personal experiences, $3.50-4 gas seems to be a cutoff for most demand with the masses. So, if you cut that to $2 (atleast in California where I am), we should expect demand to have gone up say 35% vs. 15% we see now.
As per the trade you put up, i am glad you haven't waived the white flag and left the bear camp :)
I have done really well with my flies on the 49,50,51 marks on crude. Its indeed pinning right around there, and i have my gamma scalpers doing the job for me over the past 3 days. Looking to get short next month on any spikes.
For equities, as expected we are in a 800-850 (ES) congestion, and thats working out well so far. Being the proud owner of several free ticket 1x2 put ratios, i'd like a settlement of under 830.. 800 would be sweet though :)
Greetings to you in California. Yes this $50 has been a sticky point and it does not seem to matter what data comes out. Suppose there is an invisible hand, suppose it is a certain institution the street has been bashing recently, but who knows. The big layer of 45p would only come in handy if we have a 47 handle close today, and there isnt really anything significant until 55 to stop this K9 contract from going up.In an environment like this, i do not like to have much more risk given the market seems determine to squeeze the last of the shorts out. I agree with MM that many in our camp has been suffering more psychologically than p/l wise.
ReplyDeleteAs for equities, another one of those. I own some puts outright pa, around 750 mark in june. More something i would just put in the drawer till the pain is gone.
Yes, i am also planning to get long vega and short delta around 750s for july. I think what you pointed out about MM is interesting. I just realized I fall under the same camp of psychologically stressed, but looking at the p/l, its been fairly good since last month. But, its just that nagging pain of being totally wrong and if the rally took off to S&P 1000.
ReplyDeleteThe other issue is, I have a lot of short calls against majority of the fund holdings.. most of the calls a few strikes from being ATM now. So, there is that psychological pain of losing out on the upside if wrong. Oh well.. for now i am sticking to my guns: we are going no where near 900.