Fool’s Gold As U.S. Gasoline Demand Takes Plunge From Annual High

GasPumpsLRBy Brian Milne, energy editor for Schneider Electric

Gasoline futures trading on the New York Mercantile Exchange tumbled to a better-than six-month low on the spot continuation chart Aug. 15 before reversing higher in late trade on heightened geopolitical tension, with the price pressure again generated by weak demand and growing supply.

After spiking to 9.359 million bpd during the week-ended Aug. 1, gasoline supplied to the primary wholesale market in the U.S. dropped back 437,000 bpd through Aug. 8 per data from the Energy Information Administration.

During the four weeks ended Aug. 8, implied gasoline demand is down 1.3% versus the comparable year-ago period following a fractional increase, up 0.3%, during the preceding four-week period.

After a strong start following Memorial Day, gasoline demand had trailed off. The spike in the preliminary demand figures reported Aug. 6 had spurred short covering for the NYMEX Reformulated Blendstock for Oxygenate Blending futures contract by noncommercial traders, as these market participants bought back previously sold contracts. Data on these traders, known as speculators since they are not using the futures contract to hedge an underlying physical position in the market, from the Commodity Futures Trading Commission shows they moved to a five-week high net-long position through Aug. 12. A long position is taken when the buyer anticipates prices would move higher from current values.

Global oil demand estimates were downgraded by the International Energy Agency Aug. 12, with the Paris-based watchdog for energy consuming nations revising their growth forecast for world oil consumption this year down 200,000 bpd to one million bpd. At the same time, they increased their projection for global oil supply growth by 230,000 bpd, with the bearish supply-demand outlook sparking selling activity as the week wore on.

NYMEX September RBOB futures traded down to $2.6607 gallon, the lowest trade on the spot continuation chart since Feb. 6, with the 2014 low currently at $2.5882 gallon traded on Jan. 16. NYMEX RBOB futures traded at a nearly two-year spot low at $2.5882 gallon Nov. 17, 2013.

NYMEX September RBOB futures reversed higher Aug. 15 to settle at $2.6986 gallon, spurred by heightened concern over the world’s oil supply-demand balance after Ukrainian artillery fired upon a Russian military convey that entered Ukraine without permission. Russia said the truck convey—reportedly freshly painted over military vehicles, was transporting humanitarian aid while Ukraine claimed it was a ruse, with the convey sending in military supplies. The markets worried the event could spark retaliation from Moscow, including cutting off energy supply to Europe.

Supplier postings for gasoline at wholesale distribution terminals are directed by the spot market, which trades in a cash differential or a basis against the futures market.

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