CL Spreads

Discussion in 'Commodity Futures' started by shep1487, May 21, 2010.

  1. shep1487


    New to the board, enjoy the CL discussions.

    Thought I'd start a thread devoted entirely to trading CL spreads much like the nat spreads thread that Papa Roach has so diligently maintained. July is now front of board and with the change comes opportunity.

    Short the front spread at -1.54. Looks too tight based on my models and the fundamentals. We'll see...
  2. rose


    ouch... what's your stoploss here? what models do you use? do you look at the technicals too? my personal view is that the front WTI spreads are murder because of cushing, whipsaw around a lot, interesting to hear more indepth reasons on the fundamentals

  3. bear spreading the high supply and the strong dollar? Seems to be resistance at -1.05 though that is a ways away, broke that little uptrend from past few days/week... I am assuming you are talking about N/Q, any other ideas?
  4. shep1487


    Based on the variables that I've identified that correlate most strongly with front spread movement (beyond the obvious such Cushing stock levels, refinery runs, etc.), I think this strength we've seen over the past week has been a bit too much too soon. I understand that the market is trying to price in expected draws at Cushing/ PADD 2 for the coming weeks, but I'll have to see it to believe it.

    The small PADD 2 draw last week may be a potential trend change, though, so I'll be watching this week's report like a hawk... hanging in here on the short side out a few cents...
  5. JPope


    Excuse my ignorance, but what does PADD stand for? Could you articulate the draw on this last weeks report that you referred to?
    Great forum idea, these spreads are great to trade but I need to deepen my understanding of the inventory reports, which there seems to be a shortage of information on... any ideas anyone?
  6. rose


    interesting, what variables other than stocks etc do you look at? seasonal stuff? technicals? just interested to know - what's your target on the trade? or do you not trade with tp/sl etc?
  7. shep1487


    I'm not a technician, so I don't really do chart patterns, etc. I am a fundamentals guy all the way. Spreads are nice because they more accurately reflect the supply/demand fundamentals of the underlying physical market.

    PADD stands for Petroleum Administration for Defense Districts. It's an antiquated geographical division system invented during WWII. It divides the country into five PADDS; PADD 1 encompasses the eastern part of the country, PADD 2 the "heartland" (Cushing is in PADD 2), PADD 3 represents the gulf coast region, PADD IV is the upper West part of the country and PADD 5 is the West Coast. Fundamental information for the various PADDs can be tracked weekly via the Petroleum Status report. What you do with that information is up to you :)

    I think spreads could come off another 1.00 from here, best case scenario. I don't have a firm stop in place, but with a 3:1 profit/loss target I'll be looking to get out if this think starts creeping up to the -1.25s. I'm really concerned about this report, though; this market has been so bearish fundamentally that anything that looks remotely bullish could really get bought hard. However that ball rolls both ways, of course...
  8. Hi all,

    I am very new to calendar spread trading crude oil and this thread is great! I also shorted july and went long on august. (i'm assuming that's what the OP means when he says short the front). It's not looking too good.

    Anyone have any ideas on why this is happening?
  9. shep1487


    I took my position off today at with a 0.20 cent loss ...this thing just isn't doing what I thought it would do and I don't have a good feeling about it. You can't win them all...

    As far as why we're seeing the tightening, I believe the biggest driver has been the huge inversion we've been seeing in the arb over the past month (the arb is the difference between WTI and Brent, and represents the gross margin on moving Bbls from West Africa/Western Europe to USEC, USGC). Becuase the arb has been so closed, the cash crude market has gotten progressively tighter, and I imagine that the lack of product flow over the past few weeks has finally gotten us to the point where prompt demand for Bbls is beginning to exceed supply. Hence the strong delivered diffs we've been seeing in the gulf and the subsequent tightening of the front spreads.

    Another factor may be short covering...I'm sure that the spreaders are probably lightening up in advance of what will be a few weeks of potentially bullish DOE reports..

    I still think that there will be opportunities to short in the coming weeks, and will be looking for weakness to get back in.
  10. bone

    bone ET Sponsor

    General Tendency: as the flat price market comes off, the producing commercials who are short strips will buy the calendar spread to roll their positions. Past few years, the higher crude prices also tends to favor some contango - we have come off almost 20%, so careful where you short because some additional backwardation in the curve would be understandable. I would imagine that we'll see the net short commercials (airlines, transportation firms) lightening up between -100 and -50 on the N/Q calendar.
    #10     May 25, 2010