Disconnect between oil and RBOB?

Discussion in 'Commodity Futures' started by SideShowBob, Feb 12, 2009.

  1. Anyone know why oil and RBOB have been trading so differently (heating oil as well)? Does it have to do with inventory levels? Or something else? Oil has been down the last two days while RBOB was up.

  2. I believe the reason has to do with operation capacity. Currently, they're running at 82% of capacity, near historic lows. Thus, there's less gasoline production relative to oil production, hence the disconnect in price movement.

  3. CET


    The crack spread (margin) on gasoline has been so low for a long time that the refiners could barely make money. They finally started cutting back on the amount of gasoline they are producing, but it has still taken a long time to get the gasoline cracks higher because of declining demand. Add in the fact that we are heading into so called driving season where gasoline demand increases, and people are now pushing up the price of RBOB. When RBOB increases as oil prices fall the refiners are in a great position.
  4. Oil inventories rose more than expected last week, the seventh build in a row, on lower demand from refiners, but gasoline stocks fell unexpectedly, government data on Wednesday showed.

    The latest EIA data reflects what's going on in the economy refineries are not using up their capacity and are lowering their production of gasoline and other products because of poor demand. the report reinforces the bearish crude view and/expectations for additional widening in the gas cracks..

    Right now the March RBOB Crack is trading at $18,24 dollars, back in early december the RBOB Crack spread was trading at -2 dollar.. The all time high for this spread was between march-june 2007 ($34 dollar). The March crude/long April RBOB Crack is trading at $22 dollar, up $4 since monday.

    You can trade this by shorting 3 WTI and buying 2 RBOB or you can buy loads of refineries stocks like VLO.

    If you want to long these spread I suggest you to short March crude and buy april RBOB instead the March/March spread.

    good luck.
  5. Thanks for the info boyz! Gonna get me some crack!
  6. Hi Rubibond007... Won't selling 3 vs 2 will leave you unhedged, effectly short an extra crude?

    When doing RBOB vs WTI crack they are actually on a 1 vs 1 basis. The contracts are for the same size. (i.e. 42,000 gallons vs 1,000 barrels).

    Unless you were talking about the 3:2:1 crack spread and missed out the Heating oil part of it?
  7. :D
  8. Hi papa, nice to see you again.
    Yes, you'r right, it's a bad habit that I have, 90% of the time I trade the Crack I use the 3:2:1 ratio (manually), but you can trade the 1:1 ratio, the 2:1:1, the 3:2:1 Ratio or the 5:3:2 ratio. For margin purpose I prefer the 3:2:1 ratio.

    To better simulate real-world conditions, I use the distillate prices a month out from the crude delivery to allow for a storage, refining and marketing cycle, I feel that I can get a small edge.

    I apologize for any misunderstanding my previous post may have created.


  9. Subdude


    Wow, talk about crack being whack! :D What a gigantic day - if you were short the crack, that is!!!
  10. "Since bottoming at 87 cents per gallon in mid-December, wholesale gasoline prices have managed to stage a remarkable 42% rally, despite sluggish demand and supply excess. In large part, the price rally can be attributed to the impressive feat of self-regulation by the industry, which has involved scaling back production pending a resurgence of demand.

    Currently, at least seven U.S. refiners have announced production cutbacks. Valero Energy (NYSE:VLO), the largest U.S. refiner, has idled as much as 30% of its gasoline production. Meanwhile, number two player ConocoPhillips (NYSE:COP)has taken about 15% of its refining capacity offline. However, the one notable standout remains BP (NYSE:BP). After sustaining significant hurricane and accident-related damage to its Gulf Coast refineries, the company boosted its refining capacity to 91% during the fourth quarter.

    So far, the strategy of reducing production appears to have paid off by helping push refining margins back into positive territory. Thus, production remains economically viable."

    #10     Feb 13, 2009