Monday, February 18, 2013

Buying the Crack Spread in Energy has been profitable so far this year, what does it mean?

The reverse crack spread is the simultaneous selling of Crude Oil futures and the buying of the refined products typically Heating Oil and Gasoline futures.  Here, the spread implies that the cost of the input of the raw commodity input, Crude Oil, is relatively rich or expensive to its refined products.  In fact, it suggests that it is economic to buy the products and sell the input.  If this spread relationship persists, then refiners may reduce or cease production because it would be at a loss.

Compare the daily charts in Heating Oil, Gasoline, and Crude Oil on the right hand side below charts since the start of the year.

Let the "experts" guess what is next for the Energy producers, refiners, and the commodity.  I would prefer to follow the one true voice worth listening to... the voice of the market.

The left hand side are 30 minute charts.  The apex of a triangle in Heating Oil on the left hand side 30 minute chart is near term overhead resistance.  Gasoline made the initiative move from the upper extreme of a "Balance Area" on its 30 minute chart.  These are key reference areas for day trading and swing trading.

 
(Click on charts to expand)

Crude


Heating Oil


Gasoline


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