MARKET WATCH: Gasoline blend stock price hits 2-month low

The front-month contract for reformulated gasoline blend stock (RBOB) dropped 4.7% to under $3/gal May 16—the lowest such settlement in 2 months in the New York market—pulling other oil commodities down with it.

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 17 -- The front-month contract for reformulated gasoline blend stock (RBOB) dropped 4.7% to under $3/gal May 16—the lowest such settlement in 2 months in the New York market—pulling other oil commodities down with it.

In Houston, analysts at Raymond James & Associates Inc. said, “Crude fell 2% as investors speculated a fourth consecutive rise in inventories this week. Natural gas was alone in the green and closed the day with gains of 1%, supported by a decline in the rig count and a cooler weather forecast.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The stampede in gasoline futures continues unabated. Two weeks ago the gasoline futures were pricing a market running out of supplies; today the gasoline crack to Brent for July is pricing about parity to the heating oil crack to Brent. Given the amount of speculative length in gasoline, the liquidation risk in that commodity should not yet be written off.”

Leon Westgate at Standard New York Securities Inc., the Standard Bank Group, reported, “Crude oil prices fell sharply during [afternoon trading], coming under pressure from a stronger dollar,” The price of the front-month contract for US benchmark crude remained “in a very narrow range” in early trading May 17. North Sea Brent crude “also continues to look at exogenous factors for direction,” he said.

With the national debt at its limit, the second phase of the Federal Reserve Bank's quantitative easing (QE2) program to end in June, and much of Europe “still a train wreck,” economic unease weighed on the broader markets “to close down 1%,” as did energy stocks, Raymond James analysts reported.

Jakob noted, “The QE clock is ticking, and asset classes are getting closer to the global crossroad. West Texas Intermediate could not hold the 100-day moving average at $98.40/bbl, and the Standard & Poor’s 500 Index could not hold to the support of 1,330. Global assets were somewhat saved yesterday by the dollar that did not strengthen.”

Jakob said, “The level to watch now on the S&P 500 is the 50-day moving average at 1,323. Given the precarious technical picture in crude oil and in the S&P 500, it is now imperative that the dollar does not strengthen: if it does, then it should become much harder to keep the house in order.”

Westgate pointed out, “Concerns over fuel demand are mounting, with higher-than-expected builds in gasoline inventories over the next day or so likely to have a disproportionate impact on crude oil prices.” He said, “Whether fundamental concerns and factors wrest control of prices back from the dollar for any period of time remains to be seen, however.”

Meanwhile, controlled release of water from the Mississippi river on farmlands up-river appears to have reduced the risk of flooding for oil refineries near the Gulf Coast. Westgate said, “The refineries account for up to 14% of US capacity.”

In other news, China’s power rationing has triggered increased use of diesel-fueled generators. “Low levels of coal stocks at Chinese power generators, plus drought-related hydroelectric issues have resulted in power shortages and rationing far earlier in the year than expected,” Westgate said.

Energy prices
The June contract for benchmark US sweet, light crudes traded as high as $99.65/bbl during the May 16 session before closing at $97.37/bbl, down $2.28 for the day on the New York Mercantile Exchange. The July contract dropped $2.27 to $97.85/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.28 to $97.37/bbl.

Heating oil for June delivery declined 6.78¢ to $2.87/gal on NYMEX. RBOB for the same month lost 14.33¢ to $2.93/gal.

The June natural gas contract increased 7.2¢ to $4.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 13.5¢ to $4.25/MMbtu.

In London, the June IPE contract for North Sea Brent crude fell $1.10 to $112.73/bbl. Gas oil for June jumped by $6.75 to $924/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost $1.14 to $107.79/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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