Trade Idea: Long March FEI/CP

Onyx Research Analyst Finn Gordon’s trade idea this week is to long the March FEI/CP propane contract.

March FEI/CP has seen a tremendous sell-off since the start of February, falling from over $21/mt on Jan 31 to lows of -$21/mt come Feb 08 Yet, closing prices have stabilised this week around the -$17/mt mark.

Prompt CP saw support on the back of players happy to pile in length due to the stronger CP settlement price. Players were initially seen bidding at sub $600/mt levels. However, with Mar CP now trading around $625/mt, it begs the question whether these players may look to lock in some profit.

This has also been seen in the front CP spread, which has traded from highs of $42/mt on Feb 06 to below $30/mt a week later, implying less faith in March CP. Moreover, with the prompt LST/FEI arb still at -$130/mt handles, importers may still prefer to buy FEI/CP at this relative lower level.

Looking at the technicals, price action has been shadowing the lower Bollinger band for the past fortnight, along with the RSI portraying oversold territory hovering in the low 20’s, suggesting the contract is potentially primed for a reversal.

In turn, our trade idea for this week is to long the March FEI/CP propane contract. Although, a caveat to this trade is freight prices. If freight rates continue to fall, it could be hard for FEI to muster the required strength.