Onyx Research Analyst Harry Nedeljkovic’s trade idea this week is to long July gasnap.
Gasnap – the difference between the European gasoline EBOB and European naphtha contracts – has been utterly destroyed recently. However, the reasons for its weakness seem to be waning, as we expect both markets to reconnect with their fundamentals.
European gasoline demand has completely underwhelmed the market, and there seems to have been little support seen following its huge sell off at the beginning of the month. As refineries came back online last week, long positions were closed, further undermining this strength. With stronger demand figures, stronger RINs and Memorial Day demand figures to come, we expect these low prices to receive healthy buying interest as the market repositions.
Looking at the nap in the gasnap, naphtha has been rallying to levels which seem disconnected from the physical reality. It seems the rally was synthetic, and we’ve seen strong stop outs from short players and US trade houses buying well.
There was strong buying in Euro pronap last week, which could represent them switching to the far cheaper propane. There was also less petchem buying, with it seeming like petchem demand has now been met.
Gasnaph has seen significant long stop outs, with the market saturated short in the Balmo and soon-to-be Balmo June tenors. If we see short stop outs and the re-entry of this length in anticipation of greater summer blending demand, this currently depressed price action could see a roaring reversal.