Gasoline/Crude Oil Spread: It’s Now or Never

Batten the Hatches

The IMC blog is holding a hypothetical short position in the August RBOB gasoline/crude oil spread that was entered at the equivalent of $21.19 (premium gasoline) on January 15th.

Price support for this spread was located between the January 13, 2015 low of $13.24 and the February 9, 2016 low of $13.20.  Last week this price level was breached and the spread closed below these lows for three days straight.  This cleared the way for a decline to the current 2016 low of $9.92 on the weekly nearest-futures chart.  If that low is breached, the spread could even drop a few dollars more as it heads for the 2011 and 2013 lows that were established either side of six dollars.

August RBOB Gasoline Crude Oil spread daily

August RBOB Gasoline Crude Oil spread daily

However, a close back above the similar January 2015 and February 2016 lows would trigger a Wash & Rinse buy signal.  This could spark a bear market rally that could potentially run the RBOB gasoline/crude oil spread up a few dollars more.  In light of this potential, we are going to revise our exit criteria to bail out if that scenario materializes.

Trade Strategy:

On the short August RBOB gasoline/crude oil spread entered at the equivalent of $21.19 (premium gasoline), exit on a close above $13.30.

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