The timing of commercials players trading Gasoline RBOB can be described as superb, with just one wrong signal since 2007. The COT Index possible bottom signal triggered this week, but before we jump in the trade there are some considerations of the actual scenario that need to be taken into account during our decision to take or not the trade.
I just read two articles one from the eternal bear ZeroHedge and another one from WSJ, and while 99.99% of traders and analysts would believe this is super bearish Oil. Such interpretation in the vacuum can lead to inaccurate conclusions. OPEC made a huge move with a record production cut to offset the demand destruction, and this can happen again. The ease in oil cuts is because they are anticipating demand recovery. This is the point where the confusion is made. There is a HUGE difference between demand and consumption. The former refers to the amount of a good that will be used at any given price level, and with supply determines the price, while the latter is the amount of a good used and its determined by the price.
An increase in demand means that more will be consumed at any given price level. Factors that might affect demand include disposable income, consumer tastes, and the price of substitute goods but, by definition not price. (Schwager & Etzkorn, 2017)
So the increase in production does not mean more of the product will flood the markets and pressure price down. The expectation is more consumption is ahead of us.
Another mistake that I see when taking this event of the increase in the output in production as bearish is the lack of perspective. What we saw months ago as a RECORD production cut, this increase is a drop in a bucket and has all elements to get unnoticed by the markets, in fact, it can have the opposite effect because it’s adding positive expectations of world economies recovery.
I am holding a BULLISH view on Gasoline RBOB.
Assets with BIG correlation with GASOLINE
Apache Corp
APA
Platinum NYMEX-PL1!
Avnet, Inc.
AVT
Precision Drilling Corp
PDS
Read the Full Report
I just read two articles one from the eternal bear ZeroHedge and another one from WSJ, and while 99.99% of traders and analysts would believe this is super bearish Oil. Such interpretation in the vacuum can lead to inaccurate conclusions. OPEC made a huge move with a record production cut to offset the demand destruction, and this can happen again. The ease in oil cuts is because they are anticipating demand recovery. This is the point where the confusion is made. There is a HUGE difference between demand and consumption. The former refers to the amount of a good that will be used at any given price level, and with supply determines the price, while the latter is the amount of a good used and its determined by the price.
An increase in demand means that more will be consumed at any given price level. Factors that might affect demand include disposable income, consumer tastes, and the price of substitute goods but, by definition not price. (Schwager & Etzkorn, 2017)
So the increase in production does not mean more of the product will flood the markets and pressure price down. The expectation is more consumption is ahead of us.
Another mistake that I see when taking this event of the increase in the output in production as bearish is the lack of perspective. What we saw months ago as a RECORD production cut, this increase is a drop in a bucket and has all elements to get unnoticed by the markets, in fact, it can have the opposite effect because it’s adding positive expectations of world economies recovery.
I am holding a BULLISH view on Gasoline RBOB.
Assets with BIG correlation with GASOLINE
Apache Corp
APA
Platinum NYMEX-PL1!
Avnet, Inc.
AVT
Precision Drilling Corp
PDS
Read the Full Report
