At the same time, the price difference between asphalt and upstream crude oil and fuel oil also fluctuates greatly. What is the arbitrage relationship during this period?
Production technology of fuel oil and asphalt
Production technology of fuel oil: In the process of crude oil processing, three kinds of lighter oils will be produced in turn, namely "gasoline", kerosene and diesel oil. These three oils with high combustion performance are collectively called fuel oil, and the last heavy residue is called heavy oil. Because it is widely used as fuel for industrial furnaces such as ship boilers, heating furnaces and metallurgical furnaces, it is usually called fuel oil.
Asphalt production process: crude oil is usually distilled under normal pressure to separate out light fractions such as gasoline, kerosene and diesel oil. After the residual heavy oil is reprocessed and refined in the catalytic cracking unit, asphalt products can be directly produced when the residual heavy oil reaches the specifications of road asphalt. So we can see that asphalt is the last residue in the process of heavy oil refining, which can be said to be the product of fuel oil.
From the industrial chain process of asphalt, crude oil and fuel oil, their price transmission is closely related. Asphalt can be a product of crude oil (such as heavy crude oil such as Marion oil and offshore oil) or directly processed from fuel oil. Before the right to use refined oil was released before 20 15, refined oil was mainly processed fuel oil, and many local refineries had a long-term basis for producing asphalt. At present, many local refineries are the delivery warehouses of asphalt futures in the previous period. Therefore, from the perspective of price logic, asphalt, as an end product, is highly related to crude oil and fuel oil; Asphalt is a by-product of crude oil processing. Although the relationship between price changes and crude oil is not as close as that between refined oil and gasoline and diesel, it is also highly correlated. Fuel oil itself belongs to heavy oil after light oil is put forward in crude oil processing, and contains asphalt, so its price has a greater correlation with asphalt, and logically there is a possibility of a higher correlation with asphalt price.
Arbitrage analysis between asphalt and crude oil
1. Asphalt is highly correlated with the long-term price trend of crude oil. It is estimated that the correlation between Shanghai crude oil futures SC and asphalt futures prices has reached 0.93 since listing.
2. The price difference structure in the past six months is relatively stable, ranging from 0 to 450, and the data is limited, which needs further observation.
Analysis of Arbitrage Opportunity between Fuel Oil and Crude Oil
As the product of light oil components such as gasoline, diesel oil and coal, the price fluctuation of fuel oil is directly related to the price of crude oil, so fuel oil has always been called "small crude oil". The 380 marine fuel oil futures 16 newly launched in China on July 6th, due to its shipping characteristics, the price changes are also affected by the shipping boom. Since 380 fuel oil has been on the market for less than two months, the correlation between the price fluctuation of fuel oil and SC is still very high from the operating situation since it was listed. As shown in the figure below, the prices of the two are running in the same rhythm, slightly different, and the overall performance is stable. Since mid-August, the trend of fuel oil is slightly weaker than that of crude oil, and there will be more arbitrage opportunities between fuel oil and crude oil in the later period, which is suitable for arbitrage traders to follow up for a long time.
Analysis of arbitrage opportunities in upstream and downstream industries
Although asphalt has stepped out of this round of rise and repaired the arbitrage spread of asphalt crude oil, it still does not prevent us from summing up how to grasp the core factors in order to better capture the arbitrage opportunities in the next market.
First of all, let's go back to the process of starting this round of market. Previously, according to the feedback from communication with several refineries, asphalt plants generally suffered losses in the first half of the year, and the increase of asphalt was far behind the increase of upstream crude oil. This phenomenon not only appears in the asphalt link, but also the price increase of gasoline and diesel at the end of refined oil in the first half of the year lags behind that of crude oil. Refineries have no choice but to reduce the operating rate, adjust the factory output, and correspondingly reduce the asphalt output, which has laid an incentive for the low inventory in the market caused by the change of asphalt supply and demand structure in the later period. In the peak season of asphalt consumption in September, the low inventory and worrying supply stability of Marioil upstream supplier Venezuela detonated the market, thus forming a round of asphalt futures explosion.
abstract
From this we can sum up the following points:
1. Due to the constraints of cost and profit, there must be a certain degree of correlation between the prices of various varieties in the same industrial chain, especially the crude oil industrial chain, which has a relatively stable relationship with the cracking of various varieties. Unless there is a special historical background (for example, the supply-side reform of the steel industry has given steel mills rich profits in recent years), the cracking price difference will inevitably form a corresponding price difference interval. The arbitrage of asphalt crude oil is precisely because the cracking difference is at a low level, which inhibits the asphalt supply power of refineries, thus improving the supply and demand structure and laying the foundation for the next asphalt strength. At this time, the crude oil price is in the adjustment stage, and it is expected to repair the cracking difference from the low level.
2. When the peak demand season comes, it is found that the asphalt in the market is in a low inventory state. However, this year, the capital chain of refineries is tight, the operating rate is low, and the asphalt supply is difficult to keep up in time, which further increases the market's tension on supply.
3. The continuous decline in Venezuela's crude oil production has been an important factor pushing up oil prices. At this time, the market realized that Venezuelan Marui oil, which is mainly supplied to China, is the raw material for asphalt production, and the shortage of raw materials further amplified the enthusiasm of the market.
By summing up, we can find that the opportunities for arbitrage in industrial chains such as asphalt and crude oil need to be based on a solid industrial status quo, and only by understanding the changes in supply and demand of this commodity can we grasp this operational opportunity. Therefore, for industry customers, professional companies and professional institutional investors who are familiar with this industry, this arbitrage opportunity is usually a key opportunity to participate in the futures market. Moreover, with the cooperation of fundamentals, market panic often leads to irrational behavior of investors, which in turn promotes extreme prices in the market. In the context of homeopathic operation, the combined efforts of funds can often achieve excess returns.