Trade Idea: Long Apr/May C3 CP

Onyx Research Analyst Mita Chaturvedi’s trade idea this week is to long the April/May C3 CP.

The soon-to-be prompt April/May CP propane spread saw a significant sell-off, with prices moving from $31.50/mt on Feb 14 to $23/mt come Feb 23. Interestingly, the Mar/April CP strengthened in the same time frame, enabling expectations that the Apr/May spread could also see this support as interest rolls over from March to April.

Considering that CP demand tends to peak around this time of the year, we also find support from a hopeful fundamental outlook. Adding to this, CP spreads tend to be inversely related to crude. Given our expectations of weakness in Brent this week, we may see this add further support to the April CP propane.

Despite the immense selling this week, our cumulative market positioning data shows a short market adding length to the Apr CP with a 7-day market split of 60:40 long:short in Apr and 25:75 long:short in May. We have also seen 410 kbbls of net buying in the outright Apr CP this week.

Much depends on the March CP settlement – which is due to be announced at the end of the month. While we expect a high settlement given an observed trend over the past few months, a low settlement could trigger a bearish reaction to the CP complex. Hence, we recommend keeping a higher entry to current levels to be able to capture the trend upwards.