By Brian L. Milne, Energy Editor, Schneider Electric
Wholesale gasoline costs were mixed across the country’s major metropolitan markets during the week-ended Monday (8/5), with supplier offers in upper Midwest and most West Coast markets mostly lower from prior Monday. The mixed costs for retailers follow mostly positive data for the U.S. economy except employment while futures traders now look to September delivery for the gasoline contract after the August contract’s expiration on the final day of July.
Supplier offers for gasoline at distribution terminals are governed primarily by regional spot market trading which is indexed against the New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending futures contract. Spot trading is indexed against the nearest delivered contract, with markets gradually rolling forward to the second month delivery as the month nears an end. July 31 marked the expiration of the August RBOB futures contract, with September delivery now the benchmark.
The August contract expiration signals the final weeks of the summer driving season, when demand for gasoline is typically strongest. This summer, after mostly flat demand earlier in the year, did see a strong pop in demand which averaged slightly more than 9.0 million bpd in July that was more than 275,000 bpd or 3.2% greater than realized during July 2012. During the first seven months of 2013, preliminary data shows gasoline demand up 0.5% versus the comparable 2012 period.
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Futures traders will most likely look to reduce their exposure in RBOB contracts on expectations for less demand following Labor Day. For the week ending July 30, the latest data from the Commodity Futures Trading Commission shows noncommercial market participants, also called speculators since they are not hedging an underlying physical activity, moved to a 3-1/2 month high net-long position. A long position is one in which the holder of the contract expects prices to increase from current levels.
Since speculators are not hedging a physical position which allows them the ability to quickly open or close a futures position, their portfolios are watched for potential market turns. The run-up in their net-long stance suggests the group would liquidate positions in the coming weeks which could pressure gasoline costs.
A host of features effected gasoline trading thought late July, early August, including mostly positive data for the US economy, including better-than-expected results for the manufacturing and service sectors. However, the non-farm payroll report for July released by the Department of Labor Aug. 2 showed lower-than-projected job gains, a decline in workforce participation and sluggish growth in salaries. Since there is a close correlation between gasoline demand and employment, this bearish feature could also weigh on prices near term.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.