Trade Idea: Short Q3 EBOB Crack

Onyx Research Associate Vincent Wu’s trade idea this week is to go short in the Q3 EBOB crack.

The gasoline market has seen a strong performance recently; this has helped support refinery margins, with turnarounds also reinforcing the existing backwardation.

US gasoline stocks have seen the fastest drawdown rate in the year to date since 2021, whilst strong demand out of Spain and Portugal has been contrary to seasonal trends.

The market has been overextended with longs looking to take profit, whilst Total have restarted its Gonfreville steam cracker this week. We saw better sell-side interest on Tuesday morning, with funds selling the EBOB crack, whilst majors sold EBOB spreads.

In the Q3 crack, open interest has stagnated, and the market is positioned on the sell-side. These Players include both physical and financial players, whilst refiners have been buying back their hedges. Now, we are looking to capture this short-term market correction.

Our target price is $18.50/bbl, and we suggest a stop of twenty dollars, which is the resistance level of the crack.