Trade Idea: Long the Jan/Feb EBOB Spread

Vincent Wu recommends going long in the Jan/Feb EBOB spread as this week’s trade idea.

Onyx research support this contrarian trade, expecting good risk-reward at lower levels as we anticipate a mean reversion. As the front spread weakens, prices are testing the support level of -$4/mt, which it has previously failed to break through.

With the contango being so deep, these levels provide optionality for physical traders, lending themselves to storage plays. We’ve also seen buyside flows from both physical and spec alike in recent weeks.

For tradecraft, we recommend entering at the $-4/mt level, with a target price of -$2/mt. The stop loss should be tight at -$4.50/mt to manage risk. A breakout below the support level could trigger further stopouts, invalidating our hypothesis.