Sideway trading in distillates while Arsenal takes off.

It's been a relatively quiet morning in london so far, no real change in structure and markets seemingly pausing for thoughts, though may not be for long. Perhaps consumers activities this week had run out of steam temporarily. DOE numbers were not bullish. The crude numbers confirmed what SFOT has found in the API numbers, i,e floating storage coming onshore. Crude stocks does not look like it will stop building, particularly when refineries are cutting runs with a vengence. However, what it means for products is that the demand/supply balance will begin to even out. Perhaps a little quicker for Gasoline than for middle distillates but it will still take an awful long time. The market seems to like to get ahead of itself all the time. Prime example being equities, but energy is also behaving likewise. Distillate cracks should trade within a tight band as run cuts take stocks lower, leading to higher cracks, which in turn results in refineries churning out more products or stored inventories getting released, leading to lower cracks. Evidence of the impact of recent strength of middle distillates can be seen in terms of refinery yield of distillate in US. Hence SFOT will find an opportunity to trade this range until further evidence of a breakout one way or another. He is however still bullish on Gasoline, and will use any dips to buy.

Distillate yield on crude
2nd month Ice gasoil crack

Option expiry today for K9 contract. SFOT do not see how any of the big layers of 45p or 55c will be called into action given the uninspiring behaviour of this contract the past few sessions. Now that the fund roll is over and that cushing stocks seems to be clearing at a decent pace on a weekly basis, SFOT puts a non small probability for this k9/m9 contract to see some sort of squeeze up and he is tempted to be long of some of this here. Otherwise he maintains a bear view through shorting longer dated spreads in crude while keeping flat in most other assets while the market remains irrational and squeezes more pain trade holders out.

I shall leave a very interesting article from my colleague. Anyone for a fascinating crime story from moscow?

On the other hand, now we get Villareal out of the way, the real challenge begins. Bring on Man Utd for the semis. Oh a small matter of Chelski on saturday, should be a good stretch of legs for our returning players: Diaby, Edouado, and the bored Arshavin. The end of the season has not been as exciting for a long time, at least for an Arsenal fan. Let a repeat meeting of 2006 Champions league finalists come our way.