Trade Idea: Long Mar/Apr C3 FEI spread

Onyx Research Analyst Dorian Colas’ trade idea for this week is to go long on the Mar/Apr C3 FEI spread.

The C3 FEI complex saw a poor beginning to 2024 on the back of weak demand from Asia, with the Mar/Apr spread moving from $23/mt at the start of the year to $12/mt a week later. However, with propane demand starting to pick up in Asia, we might see a shift from this bearish sentiment.

In addition, we have the backdrop of geopolitical risk stemming from the tensions in the Red Sea. While we continue to observe LPG vessels pass through the Panama Canal rather than the Red Sea or the Suez Canal, the conflict has impacted other contracts that could influence the soon-to-be-prompt FEI spread. The naphtha East/West, for instance, rallied to highs of around $40/mt this week, due to the Red Sea concerns as well as the drone attacks on Russian infrastructure. Because of this, the FEI/MOPJ sunk to lows of near $-100/mt, which could incentivise Petchem participants to switch from naphtha to propane as feedstock and thus support the C3 FEI.

Technical indicators highlight that the Mar/Apr FEI spread is in neutral territory based on the RSI and Bollinger bands, although the RSI appears to be moving upwards, signalling room for a move upwards. This is further shown by Onyx Counterparty data over the last 7 days seeing trade houses on the buy-side by over 290 kbbls.

We suggest entering long at $15/mt whilst keeping a tight stop to shield against further weakness in the spread.