New month, same theme? Poor margins and strong spreads, which one will give in?

Its June already, the sun is shining down in london this early summer, and all seems well in the markets. Everything you look or touch is going up, and almost anything is going up against the USD. As WTI inches so close to $70, SFOT has to confess he had stopped out of his CLZ0 short position last week but has no desire to jump into a long position in flat price just because financial players are having a great run. He shall also not be stubborn in his view as market remains irrational longer than his solvency. Instead he shall concentrate on relative values in oil fundamentals and happy that he had a small short in Jet and used the strength in distillate cracks last week to enter into a small short in crack spreads as well. He understands that as refineries come back online in Asia, more distillates will be coming onto the market and the contango in European gasoils paint a very ugly picture for this part of the barrel.

Oman and brent crude margins.

With this strength in crude oil, refining margins are getting crushed. Gasoline cracks have given back $3 from its recent highs, and middle distillate cracks are at the low of the year. Run cuts will take place again promptly and this could in turn slow the draw in crude, given Opec's latest decision not to cut more production. On OPEC, they must be happily keeping quiet on the extra receipts from their oil barrels the past month and perhaps the latest move in the fx world could be down to diversification? SFOT has heard theories of these sort over the past week and could not exclude this possibility. Whatever it is, it is perhaps a good time to sell some timespreads in crude.