By Brian L. Milne, Energy Editor, Schneider Electric
In futures trading, the nearest delivered New York Mercantile Exchange RBOB (reformulated blendstock for oxygenate blending) contract surged 17.82 cents or 6.2% from Jan. 25 to Feb. 1, with supplier postings at terminals serving major metropolitan markets up sharply, reflecting some of that increase from paper trading.
NYMEX RBOB futures are the benchmark in setting spot gasoline prices, which trade in a price differential to the futures contract. Suppliers adjust postings at terminals based on spot markets, mindful of their recovery costs.
The spike in RBOB futures came alongside the expiration of the February contract, with March delivery now nearest delivery, a month when Reid vapor pressure ratings on gasoline become more stringent in spot trading. RVP schedules vary across the country, with trading for gasoline delivered in southern California already at summer spec levels.
Gasoline was also lent upside support amid shut refining capacity this time of year for seasonal maintenance. U.S. refiners operated at 85% of their capacity during the week-ended Jan. 25, data from the Energy Information Administration (EIA) shows, with the five-year average run rate from Feb. 1 through April 15 at 82.7%.
View Schneider Electric’s Weekly and Historical Gasoline Price Index.
Another seasonal feature is the typical price run-up in gasoline from late winter through spring. This is known as the preseason rally, coming ahead of peak demand during the summer months, while also capturing the move to meet tougher RVP requirements and seasonal plant maintenance.
Noncommercial accounts, also known as speculators since they are not hedging an underlying physical position in the market, continued to add new futures contracts on the long side, now at a fresh nine-month high net-long position. A long position is taken when expectations are for prices to increase.
After the March contract, the RBOB market moves into backwardation which occurs when the nearest contract holds a price premium to deferred delivered contracts. A backwardated market is bullish, with the higher price at the front end of the curve signaling the need for more supply now. It is opposite of contango, a market where the value of a product increases over time to reflect costs for storage and interest.
In 2012, RBOB futures with nearest delivery peaked on March 29 at $3.4455 gallon, and then began an extended downtrend through June, plumbing a 2012 low on June 21 at $2.5376. On Feb.1, nearest delivered RBOB futures traded at a $3.0663 gallon four-month high, suggesting more upside amid continued volatility. So far in 2013, the RBOB contract traded in a 37.48cts range, from a $2.6915 low on Jan. 16 to the Feb. 1 high.
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 [email protected].