Gasoline Futures Contract Tumbles to Nine-Month Low

By Brian L. Milne, Energy Editor, Schneider Electric

pumping gasLARGEThe nearest delivered New York Mercantile Exchange gasoline futures contract, known by the acronym RBOB, slide Sept. 17 to its lowest point since mid-December 2012, trading down to the mid-$2.60s before rallying a dime from a near double bottom low Sept. 18 after the Federal Reserve announced it was staying the course on the central bank’s stimulus efforts. The contract has since erased the brief rally, and pressed to a fresh nine-month low in the low $2.60s in beginning autumn.

For the physical market, wholesale gasoline prices in major metropolitan markets were mostly lower for the week-ended Sept. 23, with large declines experienced in San Francisco, Kansas City, and Charlotte. The lower trend in rack postings will continue in the coming weeks amid the industry’s shift to higher Reid vapor pressure gasoline that are less costly to produce then summer grades, and with the sharp downturn in the futures market.

View Schneider Electric’s Weekly and Historical Gasoline Price Index.

The Federal Open Market Committee’s announcement following its Sept. 17-18 meeting that it had not begun tapering its bond buying program took many in the market by surprise. The market was anticipating the central bank would begin reducing its $85 billion monthly purchase of government assets in September by $10 to $15 billion, with the goal of the bond buying program to spur increased risk taking now to encourage greater employment by reducing interest payouts on deferred government debt. The stimulus activity has added liquidity to the market, underpinning gains in equities and commodities, and weighed on the US dollar’s value compared with global currencies.

Paring back the stimulus would strengthen the dollar since it slows the expansion of the central bank’s balance sheet, with a stronger greenback bearish for domestic oil prices. The midweek late afternoon announcement spiked oil prices while equities rallied. By the end of the week however those gains were erased, helped by comments Sept. 20 by a Fed official that said the vote to not begin tapering in September was close, and the central bank could decide to begin tapering in October.

Global oil markets also came under pressure following sharp crude production gains in Libya, with output from the OPEC member steeply curtailed over the past several weeks due to worker strike action at oil export terminals that is now resolved. Iraqi crude output is also climbing, boosting global supply and pressuring crude prices.

The geopolitical risk premium embedded in world oil prices has also eased, pressured as a US military strike against the Syrian regime for its use of the nerve agent sarin on its people Aug. 21 evaporated, with a diplomatic solution now expected.

Iran has also opened what some have called a charm offense of the West regarding its nuclear program that has prompted crippling sanctions that have harmed its economy. Iran’s new president, Hassan Rouhani, said its nuclear program is for peaceful means only, with Rouhani scheduled to speak at the United Nations this week.

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 brian.milne@telventdtn.com.

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