Transcription
On this video, we're going to go through our trade ideas in the last few weeks, see how they've done, win or loss, and what to do now. We're also going to talk about our latest trade idea, which we're going to focus on gasoline versus NAVA as we get into summer season. So, stay tuned for that one.
Okay, guys. So, straight into it. If we start nearer term and go further out, uh our latest trade idea was about uh diesel or gasol flat price. We like the flat price because we felt that the kind of general market was in a kind of overs supplied theme or bearish theme. Um but you get more bang for your buck being short the diesel because you get the short diesel versus crew prices as well. Y and um we had a trade layout for all that. And uh yeah, do we just want to go through how it's gone since uh since last week?
Yeah. So we we brought this up as a contrarian trade, right, with with multiple entries because we acknowledged that it was basically trying to catch the top. So um if you look at it from around the the 13th um I think our entry initial entry was around 614. Yeah, 614 with a stop at about 620 as and that was kind of that was the first go. Um so if you look at the chart, I mean where do we go? We we actually trended up um yeah, I think that one would have got stopped out pretty quickly. So we would have hit our first stop at 620. Um and then you know we didn't kind of give specifics for the next entries but I mean the idea was to you know watch it normalize and then kind of pick your re-entry points.
So exactly yeah, probably would have re-entered um you know 625 again maybe got stopped out again on the 630 but we said split your capital into four four goes. So on the third go you would have finally captured a pretty decent move down. Yeah, I I feel like yeah it probably would have been around somewhere around this kind of 6 630 level realistically. But even if it was 625 kind of down towards 620, you would still be into into the turn now. And uh so as it's starting to play out and it does look like it is, uh we're kind of probably nearing that time where you starting to scale in and believe in this as a long-term trend or do we think we're a while away?
Yeah, I think like bas bases what we're saying, we're probably getting to that point. Um I think we were looking for probably more of a like decent correction a decent correction. Um but having said that if your reference if your kind of starting point is higher um yeah if you're sort of 15 $15 or so into the trade then yeah so if you're if you're in a contrarian trade what you want to see I mean you can see left side of the graph you know it's aggressive moves up and um you know you want to be stopping out quickly the tight stops like we suggested this is what you should expect right we're coming to the the end of what we think what we think is the end of the trend so you have to expect volatility now as we kind of started to weaken and you can't always get your timing right. But you can see the volatility starts to decrease. The volatility is starting to decrease and a trend starting to form um south or down. That is what you're looking for to actually say the trend is coming in. You don't want to necessarily rush into the trade at this point, but this is a good indication lowering volatility and a new kind of trend starting to form that's a bit more stable. So, it looks good. Um but if you've just entered the trade and um you know, you're definitely not late. This is this is kind of the beginnings of this trade. And we did always say this is a long long-term trade as we're trying to look toward capture a long-term movement and out outright prices kind of for the rest of the year or the balance of the year.
So yeah, I would say pretty much holding off until we get to that support level that I think we said was around 603 or consumer buying ju just above 600. I think we saw the previous I would say if you're in the trade as as your third time, you could probably still hold out and wait for what we think might be more consumer buying as we head toward more to the low 600s. Um and uh be patient with this because as it starts to break and as the trend kind of continues with more and more conviction, you'll get your opportunity to to to sell more. So that looks like it's going okay and uh kind of to plan roughly.
Yep. Yeah. And I think as well as the trend starts to establish itself and that volatility starts to disappear, that probably give us a bit more comfort to start moving the stop down and then sort of locking in some of those gains which are then would give us a bit more capital to deploy to scaling up the size as well.
Yeah. Yeah, for sure. Good point.
Okay. All right. So, next one. I think we should look at the uh Brent Dubai. So, we said that um probably the best one for Onyx markets was December um or Q4 or December kind of something toward the the end of the year.
Yep. So, on the screen now um see I've got the chart for the deck deck brand Dubai. So, um yeah, I think the this time of suggestion was around the was it around the the 23rd of April. Uh so, I think it was actually slightly later. It was about the 29th.
Okay. 30th. So it was just prior to that OPEC meeting that took place over the weekend.
Yeah. So then you can obviously see the reaction to uh uh the OPEC news and you had that sort of structural rally across like the whole Bren Dubai curve basically. Yeah. And this is important to judge the market state because the market had been short for a long time. So again, no trade really is the same, but there's it kind of rhymes. There's there's there's things that repeat itself. This was a market that was um short and uh we also said is very hard to scale into this this contract you know tends to move in droves and like you just see there right so an OPEC announcement gets made we'd like we'd like the trade anyway no matter what happened in the OPEC um announcement but it was a good riskreward if OPEC were produced to to produce more crude they announced that they would huge spike short market uh you know running over itself to to buy back and this is a very dangerous time so if you're in the trade, you need to wait for this, right? This you cannot be chasing this market to buy more because it's just too volatile. Um, we're talking about probably a standard deviation of between 10 and 15 cents on a 20-day period before this trade suddenly going up to, you know, a 50 cents up, 50 cents down. You have to stay out whilst the market is doing that. If you're in the trade, great. Wait and and see it play out before you buy more. If you miss the trade, it's fine as well because you do get these aggressive pullbacks of volatility. But you can see for sure after this explosion of volatility, there is a very clear trend uh forming. Um and I just don't think it's early, sorry, too late for this trade because we're only up to sorry, what are we saying now? 60 only up to about 60 cents. And the entry we said was, you know, small negative around flat or even if you got small positive, but this is again a long-term trade. We're going through a structural shift in OPEC bringing back oil after 5 years of really, you know, bringing it all the way down to the brink of what they can supply. So this unraveling should be a slow steady uh move upwards in Brent Dubai. We're seeing all the evidence that this makes sense. You know, we've got the data Brent market being stronger in refining margins, the Dubai market getting weaker, the Chinese market um doesn't seem to be buying anymore after buying a spurt at low prices. Um, we've got uh the Iran talks potentially bringing something back and certainly leading to bearish sentiment on the Dubai benchmark. And generally speaking, the spot market has kind of been unraveling after being so strong for so long. So all all indications say this is a long-term trade. If you if this is a new trade, I I would still sorry if you missed this trade to begin with. You still got a great entry price here because a normal price level um is kind of $3 to $5 per barrel, which is a wide range, but that's kind of normal range. So for it to be still not even $1, you've got a lot of room to be in this trade, at least another dollar. Um, so it's it's still it's just looking good basically. But if you if you were looking for a scale in, you kind of this is kind of the time, right? Because the volatility again is lowered and the trend has been set. Any pullback, slight pullback is kind of a nice re-entry point. Um, so you've got you've got you've got a good layup here. Um, and you could almost just break out that volatility spike if you just if you just ignore that and look at the overall trend. It's um it's in a nice channel.
So, so yeah, that's all kind of I think we even said at the time when we were discussing it um that you almost wanted to see that volatility dying down before you which weirdly was going to give you more confidence that the market had kind of readjusted and then you were going to look for another kind of more steady move higher that you you were kind of expecting this like hyperbolic reaction because of the short market um initial reaction. But I think you actually said at the time like it's we don't think it's just going to keep going. We feel like there is going to be a bit of a correction and then things are going to normalize and that's when you can maybe start to build your position again because you've washed out a bit of that kind of panic on both sides I guess.
No, exactly. But I just think want to reiterate like this why it's worth definitely talking to us uh reading around if you can and getting historical data because every contract has its dynamics. Um like we've said before gasoline market tends to be a long only market. There's there's reasons why there's not many there's not much buy side hedging in gasoline because the gasoline buyers aren't end users. They're literally us in the street. And whilst we're trying to bring that kind of hedging hopefully longterm to the world, that's not really a staple flow. So you tend to get long only uh uh speculators which has its own dynamics and the way it moves. Bren Dubai, its dynamics is very herdy and shift. You know, it's it's one way for a hell of a long time and it's one way for a hell of a long time as well. and you get these cyclical shifts, it's a really dangerous market to be buying as the market's rallying or selling as the market's selling. You need to wait for pullbacks. That's just the nature of of the market and that's that's all I'd say on that one.
Okay. Okay. So, I think the the other one um was the fuel oil crack. Uh we felt that the refinery margins uh were getting very strong, too strong, sustainably strong and fuel being a waste product. And we understand there's agendas going on in the front. And again, if you're new to trading this kind of global oil market, when things go on in the spot market and you can't understand or there's not really a story for it, it's dangerous, right? You want to stay away. But if long-term it doesn't really make sense. And we felt and in this scenario, we felt that was that was the case because on ultimately OPEC bringing back their supply, that's more heavy crude, that's more um uh supply of fuel oil and fuel is a waste product. So for it to be so strong just didn't really make sense to us. So we said again go out more towards December uh more towards the end of the year because that will be less volatile because of the forward curve and we suggested I think December.
Yeah, we did. Yeah, I've got the December chart up here. Yeah. Okay, so let's get that one up. This is probably the one that hasn't done so well. I forget the exact entry level GS. I think it was around 750.
Yeah, 750 755. And yeah, it was it was another kind of contrarian trade, wasn't it? We were um sort of selling into a rising trend. I think there was a like longterm longterm yeah it was selling but I think we felt like in the short term that sort of it looked like it peaked a bit and we were actually shortterm trending down but yeah like long longer term it's just been kind of pretty one way but yeah it's a good it's a good reminder that there's false signals sometimes when you're contrarian training you do need to be careful if you're contrarian trending again remembering that you're trying to catch the turn but really what you're trying to do is carry it from a contrarian trade into a trending trade. So, you need to be patient to see that trend. And if there's not the movement in your if if you don't think the target price is far enough for it to really be a long-term trending, you shouldn't be doing the trade. But this is an example of where we think the fuel oil crack could go from whatever our level was - 750, even 8 down towards I think it said 10 at the time, but it could be 12, could even be 20. Right? This the fuel oil crack in in overs supplied crude markets. Minus 20 is not ridiculous. -5 is very normal. So, we've got a big big big sell-off um to come if it's going to play out. So, I think you have to be patient with this one.
Yeah. Um and there's been some indications like we say some false signals, some sell-offs rebounding, it's getting more volatile on the front and even volatile in the back end which again if we if we relate this back to even uh the the gasol flat price and some of the things that have been coming to the end of the trend, you expect volatility and then a and then a lowering out of volatility when you're reaching that. I would say this is kind of playing out the same way. It's volatile, but it's starting to it's starting to level out. Uh the indication from our trading floor is that it's looking a bit heavy. Um I think we need to see a couple more weeks of this level out and then we would be wanting to reenter this trade if you're out of it or maybe starting to look to scale in. Um but yeah.
Yeah, I think that's right. I think it would sort of get get edging up towards our stop. So I think if we were to get stopped out, we'd probably just, you know, wait and see moment rather than immediately trying to reenter the trade.
Yeah, you're looking for some more signals to sort of go again. But fuel market is an enigma at the moment.
It is an enigma, but again, being patient and and realizing that once you catch something in this in this market, you it's it's got a long way to go. We've got the rest of the year. We've got relatively fresh books still. There's some traders that have made their money, but there's some there's a lot of hedge funds that are now out the game because they've lost their money, which kind of sets up a new trading dynamic. That's a more orderly, more normalization. We keep saying that word normalization. And we've got 6 months for the market to see this normalization play out. Normalization in the sense of OPEC bringing their oil back, the big trade wars coming to an end. Not trade wars. Oh, yeah. Trade wars coming to an end, but also real wars hopefully coming to an end. You've got return of shipping channels coming back up the sewers canal. All these normalizations mean we need to see these levels go back to normal levels and this is not a normal level for the crack. It's been too long. Normal level more like 10 12 maybe even 15. So it's a long-term trade. That's a lot of money to be made in $7 per barrel. You've got multiple scaling opportunities there in long-term trend. So cool. Let's leave that there and looking forward.
So we like the gasoline versus NAFTA, don't we, Harry? And why don't you summarize that?
Well, I think like we touched on the p in the previous podcast on it again. This is Yeah. So, I've got the what have I got here? I've got the July gas map here on the screen. Um, yeah, we said that we, you know, we've seen some profit taking in gasoline. Um, felt like that kind of, you know, we weren't overwhelmingly bullish, but we did feel like, you know, there was going to be some support there. And probably more importantly, we're starting to see NAFTA, you know, wobbling and showing signs of that kind of like very heavy market where people are
Yeah, I think for us it was such a nice orderly rally on the way up on gasoline cracks. We got the move, we got a rally, the market was in the trade and it's taken profit on the trade, which is very unusual for gasoline. They usually ride it all the way up and it gets pretty messy. Now with the open interest declining in gasoline, it seems like the industry is mostly out of that trade from a speculative point of view. This is before peak summer and then the the light ends market if you like. So gasoline and that for traders they tend to trade these both of these products. They've put a lot of risk in being short for cracks.
Mhm. And that hasn't come off for a long time. It's starting to weaken now. Um it's not my favorite trade because it feels a bit crowded but it is weakening and there is a lot of investment to see that weaker and it does make sense from a refinary margin point of view from a supply point of view. If Iran comes back they have a lot of condensate supply which is uh basically very light crude which is not even considered a crude and it's very linked to NAF and LPG. So more of that coming online that's that's bearish for Napracks. But either way, if that NAFTA crack gets ground down and comes back to normal levels, it's kind of - 3 -4 levels that comes back to - 7 - 8. Meanwhile, you've got almost like an underinvested gasoline market. Whereas summer's still we still, you know, still a couple months away until we're peak summer. So if we trade, let's say August, which would be peak summer.
Yeah. Or July is fine. Um we actually think or I think it's pretty safe to say an underinvested gasoline market whilst demand the peak demand is around the corner. Um you can hold gasoline relatively comfortably but if you hold gasoline long short naper as a differential you got a really nice um relative value trade there where uh you're exposed to the short nap that the market is but you're also got a bit more protection by being long gasoline. So I just like that trade. That's a nice layup. So if we if we get the graph out should we say August or July? I think maybe August because you got you maybe want a little bit more time to like when you when you set it.
Um yeah, so so August is a good month. Um you know, it's got mid mid of that Q3 uh period, so you've got a bit of time for the sort of summer rally to really like manifest itself. Um yeah, I like I like the graph here as well, just eyeballing it. You know, since um basically midappril up now, we've had we've got a very nice channel there that you could even draw the lines on it if you want. um a couple peaks, couple troughs, but nothing drastic. Um and it's quite stable volatility there. So, if you can draw out, you could treat this very technically as well. You know, try and get the the trend line from the two peaks there we've had in the last month and the two troughs and you got a nice level to kind of entry level in the coming days to try and pick hopefully the the lower end of that of that channel and um just see it through. So, this is definitely a trending trade. I think um it's a trending trade but not we're not expecting like absolutely astronomical moves. So I think I'd leave the scalins personally and if you want to you obviously do what you want but I think for me a good setup here if you want to just capture an orderly rally is to kind of put uh a very reasonable stop that I think again the trend lines I just suggested um gives you quite a nice natural stop anyway uh something below that but if you're talking about entering kind of what level are we talking about market right now?
Well, as the current value is around 123 and a half, I think if you were looking at, you know, trying to finesse the entry a bit, you'd be looking more towards around 120, maybe 121.
Yeah, if if you could. Yeah, fair enough. And then stop loss, I think you would know that. Um, if we go to kind of recent lows, we've got 116 certainly 115 uh and lower would be, I think, enough volume to suggest, sorry, enough uh room to suggest that if it was to break through, you're kind of breaking this this nice trend. So, I would say that's a reasonable reasonable stop. So, just tricky here with the conversions. So, we've got a gasoline versus NAFTA that it usually trades in um dollars a ton.
Dollars a ton. So, if we're if we're buying uh you we just usually use the benchmark $1,000. So, $1,000 here. Let's just say we enter let's just make it easy and say we enter it like 125.
125. Yeah. Yeah. Just to make it easy. Uh 125 $10 per metric ton would be would be pretty reasonable. Yeah. So yeah, 100 tons with a $10 stock and it's pretty pretty clean. And that's your just going to put your volume up front. And if you want just zoom out a bit, Harry, like what kind of levels can we expect? Uh this is probably a time to to bring up a seasonal chart as well. But I guess um we kind of need to ride this for at least a kind of 2:1 return on the stop. Um so we should expect maybe a um $20 take profit. So somewhere around the 145 mark.
Yeah. And that that would be good, but I would say something trending like this, that's your initial profit target. Um, you can just start to tighten your stop quite aggressively once it reaches that point or take half off and run the rest. But I think just taking full profit at that would be probably just not running a winner enough given how much it's trending and especially if it gets there in a relatively low volatility way. if it suddenly spikes and this is another thing that I personally uh think about markets is if you get un if you basically it kind of feels like you get lucky if you're in a trade and suddenly it spikes because you're long and you can't explain the volatility and it's you can't really understand the positioning is a good time to just take it off because uh you can't explain it then then take what the market's given you because it can just as easily snap back especially if it's headline created or anything like that and you can always re-enter again once the market's calmed down but if it's in a nice orderly way reached your profit target then it's it's trending and you got to run that winner. It's just all about slightly ratcheting up your stop and that's that's kind of all you need to do. So that's a nice nice simple one and from a timing perspective we want to see the market getting into um uh kind of Q3 months trading. So that's July and August. So I think I think you want to hold this into July for sure.
Absolutely. Yeah. And you want to see that give time for that NAFTA correction to really like get some momentum and play and maybe some summer driving demand.
Yeah. And that too. Yeah. And if if oil prices are lower in general, so if Brent prices are low, um let's say few dollars lower than where we are now or even around where we are now, that's a good indication to keep your trade on as well because that's a quotation marks lower price environment
Than last year, right? We had a lot higher gasoline prices in peak summer. Mhm.
So if you're buying that, uh, so if you're long this and and flat price, the outright prices stay low, keep in the trade. However, if we get a big rally in Brent prices, this is going to weaken the narrative for the trade. I think quite aggressively, you will actually likely see there is some correlation with gasoline versus Napa as a differential with flat price with with Brent. And so I think, um, funny enough, if Brent does rally, you will get a performance in the gasoline versus NAFA, but you got to watch out because the demand will start to deteriorate, or the demand story will start to deteriorate; inflation stories will start to come in; maybe some reactions from the Trump administration that could start to target gasoline—you know, more waivers for biofuel ethanol. So I'd be a bit wary on that.
So, two, two key things to be uh wary on on this trade, but it's a it's a nice simple one.
Yeah. Great. Thanks, guys, for that. And listeners out there, um, any any questions you have, please chuck them on the chat, uh, on the comments, or reach out to these guys, onxmarkets.co.uk. Plenty of information there.
So, stay tuned for more, where we'll be reviewing these trades that we just suggested, uh, ongoing and coming up with plenty more. Uh, thanks guys, and see you again soon. [Music]