By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Gasoline prices in spot market trading following the Memorial Day weekend were moving higher alongside an advance by gasoline futures known as the Reformulated Blendstock for Oxygenate Blending contract that trades on the New York Mercantile Exchange. Trading has been relatively thin so far in post-holiday trading, with the upside bend in prices forged by recent events regarding the euro zone, Iran, and a technical rebound in the futures contract.
The nearby delivery June RBOB futures contract has rallied off a four-month low posted just ahead of the holiday in the backwardated market, which refers to a market in which near-term prices are at a premium to deferred delivery. The advance by the RBOB contract from the recent low could mark a reversal in the short-term trend for the contract to higher, suggesting the futures contract will continue to gain. There is however a steep discount between the June and July contracts of 6cts to 7cts in front of the June contract’s expiration on May 31.
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Aside from technical features, NYMEX oil futures were finding upside support from what is now viewed as failed talks between Iran and six world powers over Tehran’s pursuit of a nuclear capability. An early year premium in global oil prices was mostly unwound, reflected in a $23.01 drop from a March 1 high to May 24 low in ICE Brent crude futures on hope the talks would ease the concern that Iran is seeking a nuclear weapon. Those hopes dimmed after inspectors found uranium enriched to a level beyond what would be necessary for peaceful use and closer to weapon’s grade material.
There are additional talks scheduled in June with the six world powers and Iran in Moscow, but observers now doubt a breakthrough. This raises concern that we could see a supply disruption of some sort this summer, with sanctions on Iran’s oil continuing to tighten, and a European Union embargo on Iranian oil set to take effect July 1.
Barring an attack by Israel or the U.S. against Iranian nuclear targets, we are unlikely to see a re-inflation in the Iranian risk premium in oil prices on the scale of what occurred during the first quarter. This is partly due to coordination plans between the US and other members of the International Energy Agency to release oil from emergency reserves to ease market worries.
Oil markets also found support in post-holiday trade on polling number in Greece showing the conservative New Democracy party taking the lead from a more radical party that wants to terminate recent deals with bailout lenders. The numbers ahead of an election in June suggest Greece would continue to work with rescue lenders, which is seen heading off a potential exit by the country from the euro.
Although wholesale costs were mixed and seen moving higher this week, retail gasoline prices should still move lower into June, with the recent decline in the market not fully reflected at the pump.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for 16 years as an analyst, journalist and editor. He can be reached at [email protected]