Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

The January reformulated blendstock for oxygenate blending futures contract on the New York Mercantile Exchange settled at a better than five-month high on the spot continuous chart in concluding its first session as nearest delivery on December 1, continuing a midweek rally ignited by an historic agreement by the Organization of the Petroleum Exporting Countries (OPEC).

After two sessions, which included the expiration of the December RBOB contract on November 30, nearest delivered gasoline futures had rallied 16.99cts or 12.3% to $1.5470 gallon. The previous high settlement on the spot continuous chart was reached during the summer driving season on June 23 at $1.6035 gallon, less than 10 days after US gasoline demand reached a weekly record high of 9.815 million bpd, per data from the Energy Information Administration.

During their biannual meeting in Vienna on November 30, OPEC agreed to a 1.2 million bpd cut in their production to 32.5 million bpd that takes effect January 1, with the agreement creating a surge in futures trading.

The Chicago-based CME Group reported single-day volume traded in Energy-Complex products on November 30 at a record high 4,510,408, well above the previous record of 3,932,201 contracts on February 11. NYMEX West Texas Intermediate futures volume spiked to 2,530,530 contracts, soaring past the prior record of 1,861,909 contracts set the day following the presidential election on November 9.

WTI futures with nearest delivery topped $50 bbl for the first time in nearly six weeks on December 1, rallying $5.82 or 12.9% in two sessions to a $51.06 bbl settlement, and could test resistance near $60 bbl in the coming weeks.

Volatility in oil futures is expected to increase further following the OPEC agreement, which cuts production for the first time in eight years. OPEC expects another 600,000 bpd in production cuts from non-OPEC members, with Russia reportedly agreeing to reduce output by 300,000 bpd.

The quota agreement has a six-month term, with OPEC to review its affect and market conditions in May 2017.

The market will closely watch OPEC members for cheating, with the cartel having a checkered past in complying with quotas. Also, the 32.5 million bpd production quota, th...