By Brian L. Milne, Energy Editor, Schneider Electric
Gasoline futures prices posted their low for 2013 during the final week of June and the second quarter, while wholesale gasoline costs at distribution terminals were mixed in starting July 1. Overall weak demand, amply domestic supply and returning refinery capacity have converged to weigh on gasoline prices.
New York Mercantile Exchange RBOB futures, the gasoline contract used to index spot trades in the bulk wholesale market, fell to a $2.6870-gallon seven-month low on the spot continuation chart on June 26, with the decline stopped by technical retracement support. A further selloff could press the contract down to the mid to low $2.50s gallon.
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Comments from Federal Reserve officials that the central bank would maintain monetary stimulus measures for as long as needed coupled with good U.S. economic data lent upside support for the futures contract. The shutdown of a crude pipeline system in Alberta due to a leak and heightened geopolitical tension in the greater Middle East amid widespread protests in Egypt have also spurred crude costs higher.
U.S. gasoline demand ran flat with year ago through the first half of the year, data from the Energy Information Administration (EIA) shows. However, preliminary data from the EIA shows implied demand down 4.75% when compared with the five-year average.
Gasoline prices were pushed higher in parts of the country during the second quarter, namely the Midwest, due in large part to refinery outages. However, refinery operating rates have improved, topping 90% of capacity for the first time in 2013 in late June. The increased processing rate will work to cap upside price pushes by gasoline.
In futures trading, noncommercial participants known as speculators because they don’t have an underlying physical position to hedge, sharply cut their positions on the long-side of the ledger. A long position is taken when the buyer expects prices to increase over time.
Positions taken by this trading group are watched for clues of market changes, since noncommercial participants can easily move in and out of the market. The latest data from the Commodity Futures Trading Commission shows this trading group shrunk a net-long position in RBOB futures from a two-month high on June 17 by 15,450 contracts to 35,458 lots as of the close on June 24.
Of the reduction, 59% came from long liquidation and 21% from new positions taken on the short side. Open interest for RBOB futures also dropped 17,971 or 6.6% from a two-month high to 272,068 contracts as of the close on June 24.
U.S. retail gasoline prices are set to decline for most of the country. We should see a big pickup in demand for the July 4th holiday, although the holiday period narrows from last year’s six days to five days because it falls on a Thursday this year instead of Wednesday as it did 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 [email protected]