Gasoline/Crude Oil Spread: The Liquidation Parameters Were Elected. Prepare To Reenter.

RBOB Gasoline/Crude Oil Spread

On April 7th the blog entered a hypothetical short position in the August RBOB gasoline/crude oil spread at $20.00 (premium gas). The trade was being risked to a two-consecutive day close above $22.00 (premium gas).

August Gasoline Crude Oil spread daily

August Gasoline Crude Oil spread daily

On April 24th the spread closed at $22.81, which was the second day above the $22 mark. This triggered the exit criteria. Therefore, the August RBOB gasoline/crude oil spread would have been liquidated with a theoretical loss of -$2,810 per spread.

With four trading days left for the month, the nearest-futures RBOB gasoline/crude oil ratio is poised to close above 1.4:1 (on a monthly closing-basis) for the third month in a row. This will match the record three-month duration. It may even set a new record high!

Gasoline Crude Oil ratio monthly

Gasoline Crude Oil ratio monthly

Historically, every time the ratio has made a month-end close above 1.4:1 and then finally turned over, it would head all the way back down to 1.15:1 or lower. Therefore, it is still a prime candidate for a short sale. Knowledgeable spread traders should be looking for reentry signals.

Trade Reentry Strategy:

For tracking purposes, the blog will make a hypothetical trade by selling one 42,000 gallon August RBOB gasoline contract and simultaneously buying one 1,000 barrel August crude oil contract on a close below the April 8th correction low of $18.67. Initially, the spread will be liquidated on a two-consecutive day close 20 cents above the highest closing price after April 23rd.

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