Crude Oil/Nat Gas Spread: We Bought ‘Em Near the Bottom

A Wicked Reversal

At the beginning of the month, the IMC blog took a hit on a position on the long side of the December crude oil/natural gas (x2) spread when it smashed prior price support to smithereens.  However, the fact that the spread looked overdone and the fact that the December crude/nat gas ratio appeared to be establishing a double bottom lured us back in.

Not only did we go back in, but we went in aggressively.  The trade strategy was to get back into a long position with an initial exit signal if the ratio broke the double bottom.  Then we’d add more once the spread close back above the “ice level” of -$17k.  Finally, a third purchase would be made if the December crude oil/natural gas (x2) spread could clear the July high and close above -$14k.

This took place over the last week and a half.

December Crude Oil Natural Gas (x2) spread daily

December Crude Oil Natural Gas (x2) spread daily

The blog entered a long position in the December crude oil/natural gas (x2) spread at -$20,000 (premium nat gas) on August 5th, the blog purchased a second spread at -$15,310 on August 11th, and a third position was entered at -$13,690 on August 15th.

We are now loaded up.  Initially, we are looking for the spread to reach a resistance zone between the March 7th high of -$6,840 and the May 18th high of -$5,730.  Once the spread gets into this area, we will monitor the price behavior closely to determine our next course of action.

If the December crude oil/natural gas (x2) spread starts to flounder in the resistance zone, we may take partial or all profits on the trade.

If strength persists, however, we may just sit back and let it ride.  It is possible that the spread could be on its way up to challenge the 2015 high of -$1,540.

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