How Futures Pros Are Trading the Gasoline Rally

Gasoline futures soared to the highest level in nearly three months on Wednesday.

February RBOB gasoline futures rose to nearly $2.86 a gallon, the highest intraday price for a front-month contract since October. Gasoline futures have climbed more than 10 cents in a week.

(Read More: Gasoline Futures Soar to Three-Month High)

The rally in gasoline futures comes as no surprise to professional trader Anthony Grisanti, though. Grisanti, who has been trading commodities as a member of the New York Mercantile Exchange for more than 20 years, said gas futures tend to rally in late January for a few reasons.

First, Grisanti said several refineries will soon shutter for scheduled maintenance, contributing to concerns about supplies. CNBC's Sharon Epperson reports the Philadelphia Energy Solutions refinery (former Sunoco plant) — the largest on the East Coast — and a gasoline-processing unit at Delta Air Lines' refinery in Trainer, Pa., will close through late February. Valero Energy's McKee, Texas, plant and Chevron's Mississippi refinery have also shut units, Epperson added.

Second, the futures market anticipates higher demand for gasoline because people tend to drive more in the spring and summer months, Grisanti said.

Finally, refineries are in the process of switching from a "winter blend" of gasoline to a "summer blend," which Grisanti said is more expensive. Concerns about air pollution prompt the switch. The "winter-blend" evaporates in heat more quickly than summer-blends, so it sends more pollutants into the environment, especially in warm weather.

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So what's the trade?

Gas futures hit its 200-day moving average and put in a double top, prompting pro trader Rich Ilczyszyn to take profits. Ilczyszyn, founder and chief market strategist at iiTrader, sold the March RBOB contract on Wednesday, which rose roughly 10 percent in four weeks.

"It's gone up too far, too fast," Ilczyszyn said, "it's overdone short-term. Waiting for a set-up to buy."

Ilczyszyn said he'll wait for a pullback of 2 to 3 percent before pulling the trigger. He'll consider buying at around the $279 level and then will likely go long through April.

(Related: How to Get Started in Commodities Trading)

Grisanti also plans to buy any dips in the price of gasoline futures.

"Going with a trend that has been established for years," said Grisanti, founder and president of GRZ Energy. "Even though I don't think there will be record prices, I do think in two to three months, we will be paying about 30 to 40 cents higher at the pump per gallon."

The national average is $3.32 a gallon, up 7 cents from a month ago and 3 cents in the past week.

Grisanti plans to buy the March contract between the $280 and $275 levels on a small dip. Then, he plans to stay long.

From the floor of the Chicago Mercantile Exchange, pro trader Jeff Kilburg sees things differently. He suggests getting short gas futures at the $285 level.

"We have seen a breakout, and this oil has really squeezed the shorts," said Kilburg, referring to how Brent crude rose 5 cents to $112.47 a barrel while U.S. crude for March fell 10 cents at $96.58, off a four-month high of $96.90 hit earlier. "Being squeezed in the short market, as well as coupled with the S&P [at] multi-year highs, I think it's a false pretense."

In other words, Kilburg thinks the gas futures rally might be too good to be true.

"One thing I've learned down here from all my years of trading in the pits here in Chicago is that you have to go with your intuition," said Kilburg, founder and CEO of KKM Financial. "We'll see [gas futures] go down here shortly."

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— Reuters contributed to this report


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