Bottoming Action for Gasoline Futures?

By Brian L. Milne, Energy Editor, Schneider Electric

fuelnozzleThe nearest delivered gasoline futures contract—reformulated blendstock for oxygenate blending, fell below $2.50 gallon in trading on the New York Mercantile Exchange for the first time since 2011, trading at a $2.4945 23-month low Nov. 7. The contract, which has technical support at the $2.4440 gallon November 2011 low, rallied a dime since dipping under $2.50 gallon.

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

We could see the RBOB contract edge higher from here, leaving the early November trade as the low for the fourth quarter for the contract. Seasonally, RBOB futures have posted bottoms or near bottoms in November after declining from the summer months when demand for gasoline is greatest, typically finding support from holiday travel from Thanksgiving through Christmas.

The Energy Information Administration’s (EIA) U.S. retail gasoline price average slumped to a $3.265 gallon better than 10-month low for the week-ended Nov. 4, with the average declining each week since the beginning of September except for one. Since Sept. 2, the average is down 34.3 cents or 9.5%, while 22.7cts lower than a year ago.

There are several bearish features in the global market that could pressure gasoline in the coming weeks, including sharply higher crude supplies in the U.S. and the potential for more oil on the ocean from Iran should a deal be reached over its nuclear program that eases sanctions on Iran’s oil exports.

Lower-than-projected demand would also pressure world oil prices, with the euro zone economy again facing headwinds. The European Central Bank unexpectedly lowered its key interest rate from 0.5% to 0.25% due to low inflation Nov. 7. Some see this move stirring growth, and equities did rally on the news while the U.S. dollar surged, pressuring NYMEX oil futures.

Better-than-expected growth in U.S. employment during October reported Nov. 8 did rally oil futures, with the RBOB contract gaining a nickel on the day, with the report suggesting strong underlying strength in the U.S. economy despite the Oct. 1-16 partial government shutdown. The nonfarm employment report released by the Department of Labor said 204,000 new jobs were created during October, well above estimates as low as 120,000 jobs.

The bullish payroll report came on the heels of a greater-than-expected 2.8% expansion of the US economy during the third quarter versus market calls the economy had grown 2.0% during the three-month period.

The bullish data points, which follow better-than-expected readings on manufacturing and non-manufacturing growth, suggest higher demand for oil and its products. During the week-ended Nov. 1, the EIA reported implied gasoline demand at 9.292 million bpd—the third strongest weekly demand rate of 2013.

The data was likely skewed by the partial government shutdown, which did close EIA offices, with underreporting likely leading to the jump in demand in closing out October. Still, four-week average implied demand for gasoline through Nov. 1 is 9.055 million bpd, a sharp 462,000 bpd or 5.4% higher versus the comparable year-ago period, although last year’s demand was adversely affected by Hurricane Sandy. From Jan. 1 through Nov. 1, gasoline supplied to market averaged 8.746 million bpd, up 1.1% versus the same timeline in 2012.

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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