Trading The Holiday Energy Markets

Today's inventory data was anomalous with a 10.3 million barrel draw on headline Crude oil. In my experience, you only see massive draws like that in the last week of the year as producers try to get physical crude off their books for the end of tax year. Maybe this is related to last week's end of Quarter, but it's unusual. The draws in Gasoline and Distillates were also considerable, but not nearly as shocking.

In my opinion at some point very soon it would be advisable to: SELL DEC 2013 Crude v. BUYING DEC. 2014 Crude oil around $8.00 wide.

It traded up to $8 this morning and is softening as I type -- back to $7.55 Yesterday.

I recommended Long Brent v. Short WTI spreads and that looks to have reversed today as well.

Alternatively, I'm working orders with amenable clients to SELL THE DEC 13 Crude 115 call v. BUYING THE DEC 14 Crude 110 call. I believe this gives you considerable flexibility and also expresses the belief that the WTI term structure should flatten over time.

The Gasoline and Heating Oil crack spread may have bottomed as well. If you're unfamiliar with the Energy complex, these are all inter-related spreads as the products tend to track Brent prices more closely than WTI.

The August Gasoline crack traded as low as 16.10 this morning and it's back to 18.10. A $2.00 move in this spread = $2,000/spread. The near term Gas crack traded up to $38 (ish) in late February and early March (which, the record will show I advised being short).

These markets are dynamic and not for the faint of heart. The ongoing situation in Egypt will play a role and IF unrest spreads to the Energy producing neighbors then things escalate quickly (a la 2011). Feel free to email/call to discuss. I believe Brent/Gasoline has considerably more upside than WTI.

In less volatile news, Natural Gas traded back near interesting levels/recent lows. Watch 3.50 on front month NG. I would consider strategic long delta plays if/when that comes to pass.

Enjoy Independence Day.