For the first time in months, I witnessed significant buying interest in the airlines. Why is this significant? Answer: Jet fuel margins.
Think of the airlines as the other side of the crack spread barbell. They do well when refiners suck and suck when the refiners roar higher. It’s a zero sum game and someone is always winning. For all of 2011, the refiners have enjoyed record spreads, which enabled them to repair broken balance sheets and update facilities. This respite ensures they will be in business for years to come, at a minimum. Regarding WNR, as of last quarter, they were 35% hedged on 321 cracks at $27. At the present, cracks are trading about $27.5, down from $38. Also, WTI-BRENT spreads are $22, down from $28. The trend is lower, which has caused some to believe the trend is broken.
I’m not so sure about that. However, it’s important that I be honest with myself and acknowledge that stocks prices have stagnated at best, underperformed compared to tech. With the end of the hurricane season around the corner, I suspect the appetite for refiners, right or wrong, will wane. This is a 180 degree change for me and that’s how I roll. I can’t change who I am.
Now WNR may end up looking like fucking rocket scientists if cracks continue lower. Think about it. They locked in $27 cracks, historically, a fantastic profit margin.
But, for my money, I need juice. I need to maximize my upside during respites because I am not actively shorting. Meaning: I must make rallies count.
At the present, WNR constitutes just 5% of my holdings, down from 30% last week. I am done selling and will redouble my efforts in the tech sector, then revisit the refiners later on.
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u need juice?
I’m here for ya buddy!
😉
Face Melting broad market rally on tap.
Smoke exotic herbs and fornicate with women of lower moral standards
Indeud
Nice, thank you!
Fly –
Why do airlines ROAR when Refiners rip hire, Shouldn’t they do worse as the jet fuel spread widens?
Thanks
typo
fixed
Livermore
I kinda agree with you.
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The US market seems ok. For all intents and purposes Greece has basically defaulted anyway and it’s a matter of simply picking up the pieces with them. By picking up the pieces I mean they will at some stage accept the capital loss and repackage the bonds at 1/2 their value. They will do this with all the minor PIIGS.
Geithner went over there and read those fucking morons the riot act. It make me laugh that they have Geithner going over there to tell those clowns what to do.
They should have let me lead the talks. Televise that shit and ratings would never be higher.
You’re totally right about crude during hurricane season. No regrets. Should have paid out LeFly.
It might be time to back hand your boy 0bama for opening national reserves (thus increasing supply and decreasing demand$).
I doubt that though.
A nice triangle, S&P, is forming (credit Jamie Saetelle, FXCM). Clam next week.
I wonder if there is a recursive relationship between 321 and WTI-Brent, assuming waning ME conflicts. As it becomes cheaper to transport from Cushing, shouldn’t the location spread narrow in lock-step? Perhaps inland and GoM rig count compared to refinery utilization would shed some additional light, paired with inventory level data.
You must also consider OPEC and the IEA cutting demand forecasts for ’11 and ’12 production today, albeit rather negligible.
Fly trades like a bi polar pregnant woman. It’s hard to keep up with him and to attempt the feat would be risky . I’ve been holding onto the same 15 positions for a year .
“A bi-polar pregant woman”
Lol. That’s, um, pretty volatile.
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