Monday, January 23, 2012
Improving economic data out of the U.S. and more refinery closings may make Gasoline inventories tight going into the summer, especially on the east coast. This is important as the delivery point for NYMEX RBOB futures is the New York Harbor. Traders expecting U.S. Gasoline prices to rise going into the summer may wish to explore bull spreads in RBOB futures with the buy leg of the spread beginning in the summer delivery months. One possible trade would be to buy the July 2012 RBOB futures and sell the September RBOB futures for a 0.0725 July premium. Traders holding this bull spread would wish to see the July premium widen over the September futures.
U.S. drivers have certainly capped their gasoline usage of late as refining output has begun to overwhelm demand causing supplies to surge to 10-month highs. According to the Energy Information Administration (EIA), in their weekly energy stocks report, U.S. Gasoline inventories rose by 3.717 million barrels last week to stand at 227.5 million barrels, which is the highest inventory level seen in 10 months. In addition to higher production, the U.S. Gasoline imports were higher last week as European refiners are exporting Gasoline due to slow demand on the "Continent." Globally, the refining industry is in the midst of a shakeout, with refineries in Europe closing due to poor profit margins tied to high input costs and lower domestic demand and competition from state run oil companies in developing countries. In the U.S., east coast refineries have been closing at an alarming rate because of a lack of access to cheaper WTI grade Oil which has benefited refineries that have access to Oil in Cushing, Oklahoma. Stricter pollution standards have made turning a profit a difficult proposition. Just recently, Hovensa LLC announced it will shut its St. Croix refinery, one of the largest in the western hemisphere, due to continued losses. Though current U.S. Gasoline supplies remain ample, especially given the current lackluster demand, one has to wonder what will occur in the Gasoline market once the global economy begins to rebound, or a major U.S. refinery has production issues, or a bottleneck occurs in a pipeline that ships Gasoline from the Gulf Coast to the Mid Atlantic and East Coast states? Any of these scenarios has the potential to send Gasoline prices sharply higher in the coming year, and this concern should remain on traders' minds as we move towards the summer driving season.
Technical Notes
Looking at the daily chart for the daily continuation chart for RBOB Gasoline futures, we notice prices have broken decisively above the downtrend line drawn from the 2011 highs made back in late April. Though this is a bullish technical indicator, prices have failed a test of the 200-day moving average and in the near-term a price correction may be in the cards. The 14-day RSI has started to turn down with a current reading of 57.43. Resistance is seen at the January 18th highs of 2.8529, with support seen at the January 12th lows of 2.7178.
Mike Zarembski, Senior Commodity Analyst