Morning Futures Roundup

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Unsure Unleaded
 Fundamentals

RBOB Gasoline futures are higher for a second consecutive session on stronger equity prices, a weaker USD and supply disruptions in Nigeria. Rebel group MEND claimed responsibility for attacking a major pipeline owned by Shell hours after being offered amnesty by the government. The supply disruption in Africa's largest Crude Oil producing nation caused a buying spurt on the NYMEX's petroleum complex. The Nigerian disruptions have supported prices in recent weeks, as violence in the Niger Delta has picked up significantly. The region produces light, sweet Crude Oil, which is coveted by refiners for its high yields of refined products. The move higher in equity prices offers further support for prices, as it could signal increased demand.

The economic data released this week has been a mixed bag for traders. The sharp increase in durable goods orders was unexpected and extremely positive, as were the final GDP and existing home sales data. On the other hand, new home sales and initial claims are indicating that many analysts were premature in their assessment that the housing market will recover sooner rather than later. As long as the unemployment rate remains high, foreclosure rates figure to remain constant or increase. This could inhibit economic growth in the US, as home values are a barometer of wealth. Consumer spending habits are largely influenced by housing prices and we have seen that Gasoline demand has been far more elastic than previously thought.



As Gasoline demand has tumbled, supplies have increased, which can be seen as bearish for RBOB prices. The bullish demand outlook for commodities may have been premature and the sharp increases in petroleum prices may act as a barrier to an economic recovery.  The RBOB contract may find support from the weak refining margins, which have fallen from $16.52 to $9.28 per barrel over the last ten days.  This could result in refiners scaling back production until margins widen once again.  The price of the Crude Oil contract has risen more sharply than the RBOB contract over the past month.  Either the Crude Oil contract will have to fall back or the RBOB will have to rise to protect from supply imbalances.  The question that is left for traders is which one of these markets will move to converge with the other?


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