We recommend shorting NYMEX WTI futures contract of the March'16 expiry against that of June'16 contract. This calendar spread is trading below $0.40 /month, less than the storage costs in the Cushing area. With our revised assessment of Cushing crude stocks, we think that spring turnaround season could lead to material stock builds and as such see the potential for WTI structure to deteriorate versus the current levels, which are strongly bid on the back of current fundamentals. As such, we go short WTI time spread with a suggested target of -$2/bbl and a recommended stop at -$0.65/bbl.
We also recommended going short the December'15 ICE Brent futures contract, which is trading in the money by $4.03/bbl at the time of writing. While SPR-related crude buying has helped clear West African crude surplus for the time being, we expect to see Atlantic Basin crude surplus to increase in October and November and as such expect prices to fall further from current levels and recommend remaining short.
We also recommended adding long the January'16 ICE gasoil futures contract against that of ICE Brent (winter ULSD crack), currently in the money by $0.40/bbl. The fall refinery maintenance season will potentially lead to this crack breaking out of the $1/bbl range it has been trading over the past month as product supply falls. As such, we recommend going or remaining short this crack at current levels.


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