Trade Idea: Short the Feb C4 ENT vs. C3 LST

Onyx Research Analyst Finn Gordon’s trade idea this week is to short the February C4 ENT vs. C3 LST.

US butane had a particularly strong December and is maintaining good form into the new year, aided by the physical being very well bid. This is likely part of a bull play, as butane prices soared well into three-digit territory in the prompt months, despite being neither economically viable nor sustainable for blending with gasoline at this price point.

Prices for February C4 ENT vs C3 LST reached highs of over 30 c/gal on the 4th of January, but price action has since dipped back down to 25 c/gal on the 9th of January. It is expected that butane will continue to be a function of gasoline blending and crackers’ demand, so we believe the US butane propane differential should retrace downwards.

This prediction is supported from a technicals perspective: The RSI recently peaked at 77 on the 28th of December, then displayed an overbought marker of 70 one week later. Additionally, when tracking the 8-day and 21-day moving averages for the prompt contract, the 8-day looks set to subduct its 21-day counterpart.

Considering the above, our trade idea for this week is to short the February C4 ENT vs C3 LST. Since this is an illiquid market, we advise setting a wide stop loss.