Trade Idea: Long May Gasoline E/W

Onyx Research Analyst Finn Gordon’s trade idea this week is to long the May gasoline East/West, which means to buy Sing 92 gasoline and sell European EBOB gasoline.

We expect the Asian gasoline benchmark to continue on its charge as it has been well bid, with buying in the spreads particularly strong down the curve in the past week.

It is interesting to note that we have seen some refiners buying the front crack. This could be an indication of these physical players unwinding hedges with the expectation of higher prices. MOC continues to be routinely well bid which helped to push prices up in thin liquidity.

We expect the weakness that began last week in EBOB to continue, as it seems the market is retracing from highs of almost $25/bbl reached in the May contract to $22/bbl now. The weakness in US structure is driving this. The Jun RBBR fell from over $27/bbl on Apr 16 to below $25/bbl the following week.

The strength of the European structure going forward will likely continue to rely on RBBR strength, but US structure seems weaker now; the stronger-than-expected EIA draw was fairly ignored as it did not come from PADD 1 or PADD 3. We have also seen trade houses stepping down to offer EBOB spreads across the curve.

As this is a trending trade there is no need to catch the reversal. However as with all East/West contracts, freight will be important to keep a close eye on.