Using Physical assets to exploit arbitrages

Would love to hear from folks using refineries or blending facilities to exploit arbitrages in gasoline, distillate or fuel oil markets.

 

What exactly are you looking to learn?

 

How a "trader" at a firm that is "trading" against physical in the money assets is even remotley as close to a trader that actually just has apile of money in front of them and needs to make "xx" return to get paid.

Physical guy for example, sells against asset gets paid, market then procedds to move much higher subsequently he leaves 15 percent on the table, it doesnt matter as long as the hedge was "profitable" he get bonus and trophy end of year, tow total different worlds, "trading" and arbitrage w/ assets

 

Does having a refinery give me an advantage in playing the premium - regular gasoline arbitrage?
How about the Export diesel to domestic diesel arb - is having an asset an advantage over just playing in financial markets?

 

An asset is always an advantage: inherent optionality.

You can do better than that.

 

i understand that, but what creates the optionality?
and how does a trader consistently use an asset to extract value from the market?

 

The optionality is inherent in the asset. Storage can be filled or drawn down.

A refinery can run different types of crude (heavy, light, sweet, sour; naphtha rich, distillate rich) and can be configured to extract varying degrees of product. There are literally thousands of inputs to optimizing a refinery (see linear programming).

A coastal refiner can draw in different types of crude from both the domestic and international markets while a land-locked refiner typically relies on domestic. Which crude they lift depends on the relevant crack, their on-site storage, and any domestic or international arb opportunities.