By Brian L. Milne, Energy Editor, Schneider Electric
Seasonal weakness has dovetailed with building crude supply in the U.S. to pressure gasoline values with retail prices last tallied at a 10-month low while in futures trading the nearby contract is retracing the down move to the November 2011 low at $2.4440 gallon.
November is prime time for gasoline futures, which trade on the New York Mercantile Exchange owned and operated by the Chicago Mercantile Exchange as Reformulated Blendstock for Oxygenate Blending, to plumb multi-month lows.
Before expiring Oct. 31, the November RBOB futures contract had rallied as protests forced a drop in Libya oil exports to a fraction of capacity, with the North African nation a member of the Organization of the Petroleum Exporting Countries. The lost supply to world markets pushed ICE Brent crude futures higher, with the RBOB contract still directed by Brent crude instead of West Texas Intermediate crude futures, the light sweet grade that serves as the NYMEX crude contract. An agreement was reached to quickly end the protests, exerting pressure on Brent crude and, in turn, RBOB futures.
WTI lost its moniker as a global price marker for crude amid the shale revolution in the US that has reversed a long-term downtrend in crude production, with domestic crude output in mid-October the highest since the first quarter 1989. The new supply sharply pressured WTI and other midland crudes against global crudes because of limited takeaway capacity to get the new supply to market. The logjam is gradually finding relief, with new capacity set to come online by the end of this year expected to offer greater relief for midland crude values, including WTI.
In the interim, the ongoing refinery maintenance period, which is in in its final weeks, joined climbing domestic crude production to drive domestic stocks sharply higher through October. The Energy Information Administration (EIA) released data Oct. 30 detailing a larger-than-expected 4.1 million barrel increase in commercial crude supply to 383.9 million barrels for the week-ended Oct. 25, its sixth consecutive weekly build, with crude stocks 28.3 million barrels or 8% higher than in mid-September.
The report was a main feature in pressuring NYMEX WTI crude futures to a four-month low on the spot continuation chart, which is now trading in the mid-$90s barrel. Nearest delivered NYMEX WTI crude had held over $100 barrel from July 5 through Oct. 21.
NYMEX WTI crude futures were further pressured since the EIA report on a strengthening US dollar, with oil trading internationally in the greenback, so a stronger dollar pressures domestic oil prices. The dollar rallied in index trading against international currencies from a nearly 11-month low in late October to a 1-1/2 month high Nov. 4 on a weakening euro, with the U.S. dollar boosted by sluggish economic growth and high unemployment in the euro zone that has some speculating the European Commission would announce stimulus measures when it meets Nov. 7, which would weaken the collective currency.
Wholesale gasoline prices at major metropolitan markets were down across the country entering the first full week of November, while the EIA U.S. last reported a 6.6-cent drop in its U.S. retail gasoline price average for the week-ended Oct. 28 at a $3.294 gallon 10-month low for the week-ended Oct. 28. The average is down 27.4 cents lower than a year ago.
There’s more downside for the retail average, and we should see wholesale costs continue lower in early November. The downside will slow this month, with the RBOB futures contract to likely hold support at the November 2011 low.
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]