Morning Futures Roundup
Near-term Supply Tightness Supports RBOB Gasoline Prices
Fundamentals
The RBOB futures are the strongest sector in the energy complex, as lower inventories and refining issues seem to be trumping lower demand. Futures prices are in a backwardation market going out to the February 2013 contract, as storage levels are running nearly 18 million barrels below last year's levels for this time of year.
Refining output remains constrained, as closures of refineries on the East Coast and in St. Croix have sharply lowered supplies to the East Coast. Refinery maintenance in Europe and Canada has also curtailed supplies, though traders will likely see Gasoline imports rising in the coming weeks as the maintenance period ends.
On the West Coast, refinery issues have sent spot gasoline prices to record levels. The West Coast gasoline market is virtually isolated from the rest of the country, as special fuel blends and a lack of pipeline infrastructure has the region nearly wholly dependent on local refineries for its fuel needs, so disruptions can produce volatile supply issues and wide price swings.
Though current supplies remain tight, there is hope that prices will begin to decline going into winter. First, the large premium that Gasoline is trading over the price of West Texas Intermediate (WTI) Crude should encourage refineries to ramp-up production given the attractive profit margins currently available.
In addition, the switch to cheaper to produce "winter blends" of Gasoline should add additional supplies to both East and West Coast areas, where special formulations are mandated during the summer months. Some traders may want to keep an eye on the term structure for RBOB Gasoline futures, as a widening or narrowing of the spread could be a signal for expectations for supplies in the coming months.
Technical Notes
Looking a the daily chart for November RBOB Gasoline, we notice increased volatility during the past 4 weeks, with prices swinging over 25 cents in only a few sessions. Refinery outages, events in the Middle East, and tight inventories have been behind the price swings. Currently, the market is holding just above the 20-day moving average (MA) and at the upper end of the recent price range. The 14-day RSI has also moved widely since June, with readings ranging from 14 to 78 in only a few week's time. Currently, the RSI is relatively neutral, with a current reading of 60.70. Support is found at the September 19th low of 2.7029, with resistance found at the contract high made on March 14th of 2.9884.
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