The Energy Bottleneck: Gasoline WTI Pair Trade

Gasoline WTI Pair Trade

Long - Gasoline Cash / Short - WTI Crude Oil (Nov -26)

This trade isolates the U.S. Refining Margin (Crack Spread) while hedging out global absolute oil price direction. Combining a long finished-product exposure with a short raw-feedstock exposure anchors performance directly to refining capacity bottlenecks, rather than relying on crude prices remaining high.

Rationale:

Gasoline remains supported by a combination of very high crude prices, disrupted global refining capacity and tight refined-product supply. Brent is back above $107 per barrel and WTI above $102 per barrel as attacks on Saudi infrastructure and disruption around the Red Sea continue to threaten crude and product flows. The key point for gasoline is that this is no longer simply a crude-oil story. Refining capacity itself is becoming the bottleneck.

What’s driving the rise?

1. Tight global refined-product supply

The Middle East conflict has severely disrupted global refined-product flows, with the impact becoming increasingly visible in refinery output and inventories. Global refinery throughput stood at 81.4 million bpd in August, 4.2 million bpd below the same month last year, with losses spread across the Middle East, Russia, and crude-importing economies in Asia. The IEA expects full-year refinery runs to decline by 2.6 million bpd in 2026. More importantly, refined-product and LPG exports from Gulf countries remain nearly 60%, or 3.7 million bpd, below February levels. Gulf diesel and gasoil exports averaged just 390,000 bpd in August, slightly above one-quarter of pre-war levels, while combined Gulf and Russian diesel/gasoil exports were 1.6 million bpd below February levels.

This supply shock has also rapidly drawn down inventories, with global observed oil stocks falling by 95 million barrels in August alone and 507 million barrels since February. With global refining capacity already stretched, the disruption in refined-product supply is keeping product markets significantly tighter than the underlying crude market.

2. Strong refining margins

Crack spreads are indicators of the profitability of refining crude oil into petroleum products such as gasoline and diesel. One common crack spread is calculated by subtracting the spot market price of a gallon of crude oil from the wholesale price of a gallon of refined product.

Since May, the crack spread for gasoline in New York Harbor has been about 1 cent per gallon (gal) higher than it was in 2025, when the crack spread reached about 60 cents per gallon. The crack spread for gasoline is still high because refiners are having difficulty in replacing the barrels they have lost. Gasoline supplies are scarce due to disruptions to refining operations around the world in Russia, China, and the Middle East.

Tighter global supplies and higher prices have increased both the cost of imported gasoline and demand for gasoline exports from the United States. Since March, total U.S. imports of gasoline, including finished gasoline and blending components, have been 32% below the five-year (2021–2025) average.

EIA noted that elevated crack spreads, together with higher crude prices, have been a major contributor to higher gasoline prices. European gasoline margins recently rose above $62 per barrel, close to the 2022 record, while ARA gasoline inventories fell to their lowest level since 2021.

3. Middle East supply risks remain unusually high

Saudi oil production had already dropped sharply after tensions rose in March when the Strait of Hormuz was closed, and recent attacks on the East-West pipeline threaten another serious disruption. Since the pipeline usually transports about 7 million barrels per day, a long-lasting shutdown could seriously reduce the supply of crude oil and products.

4. Gasoline inventories are not particularly comfortable

U.S. gasoline inventories increased by around 1.3 million barrels in the latest week to 206.9 million barrels, but gasoline demand simultaneously fell to 8.6mbpd. The inventory build is therefore a near-term bearish factor, although it is being offset by the much larger global supply disruption.

Although the overall outlook for gasoline remains tilted toward the bullish side, it may become increasingly vulnerable to a sharp correction if Middle East shipping flows, Saudi production, or refinery availability meaningfully improve. Also, sustained $100+ crude prices will eventually start destroying demand. OPEC has already cut its 2026 global oil-demand growth forecast to just 380,000 bpd, its fifth consecutive downward revision.

Even if a peace deal happens between the US and Iran or Saudi Arabia and Yemen, prices for refined products like gasoline may be stickier than WTI, making this spread idea viable in such macroeconomic conditions.

Gasoline Technical Outlook

Gasoline appears to have broken out of a downward-sloping trendline connecting the highs of 18th May near $3.79 and 23rd July near $3.58, suggesting a short-term bullish outlook on the daily chart. With the daily RSI also trading above the 50-mark, momentum seems tilted toward the upside.

The previous highs around $3.65 from September 11th remain key near-term resistance to clear before further buying momentum could test the $3.79 levels from mid-May. On the downside, the 50-day EMA near $3.32 could provide crucial support if the $3.40 level from the downward-sloping trendline breaks.

Gasoline/WTI Ratio

The Gasoline/WTI ratio is currently rising after respecting a pivotal horizontal support line near 3.26 levels from the lows of 3rd June (demarcated by the bright white line on the chart). If buyers step in to defend this zone, the technical strength of this support will be valid, suggesting a key inflection point from a pair-trading perspective

Scenario Analysis

The following table shows potential profit and loss scenarios for a Long Gasoline / Short WTI Crude Oil pair trade. The trade uses an Equal Cash Exposure strategy with $100,000 allocated per leg, for a combined gross exposure of $200,000.

The model tracks a current baseline price ratio of 0.037 based on current spot levels of Gasoline at $3.57 per gallon and WTI (November 2026 contract) at $95.29 per barrel.

Date: 18th September, 2026

Source: Bloomberg

*Prices when ratio increases/decreases are hypothetical.

Note - The estimated profit/loss does not account for holding charges.

1. Ratio Increases (Bullish Spread Expansion)

This scenario simulates conditions where finished refined product (Gasoline) outpaces raw feedstock costs (WTI), representing an expansion of the refining crack spread.

• If the price ratio expands to 0.041, Gasoline rises to $3.93 (generating a $10,000 profit), while WTI rises more modestly to $96.48 (resulting in a -$1,250 short loss). This generates an expected return of 4.38% with a net combined profit of $8,750.
• If the ratio widens further to 0.043, Gasoline rallies to $4.29 (+$20,000 profit), while WTI ticks up to $98.89 (-$3,781.25 loss). This drives an expected return of 8.11% with a total net profit of $16,218.

2. Ratio Decreases (Bearish Spread Compression)

This scenario covers the structural risks where the spread compresses, either because raw crude spikes aggressively due to supply fears or because finished gasoline demand deteriorates.

• If the ratio drops to 0.035, the long Gasoline position drops to $3.27 (-$8,500 loss), while the short WTI contract declines to $92.43 (+$3,000 profit). This leads to an expected return of -2.75% with a combined net loss of -$5,500.
• A severe compression to 0.033 maps Gasoline down to $2.95 (-$17,500 loss) and WTI down to $89.57 (+$6,000 profit). This results in an expected return of -5.75% and an overall portfolio drawdown of -$11,500.