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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

Bullish seasonal features are now the driving force in the US gasoline market, and speculators have already positioned for the price advance off February lows, with those lows likely to endure for several weeks. Considering the calendar, the lows plumbed in February might very well persist through 2016 and the futures contract might have established a long-term low on the spot continuous chart at $0.8975 gallon.

March RBOB futures on the New York Mercantile Exchange expired at a $0.2985 gallon discount to April delivery, with the April contract gapping higher on the spot continuous chart on the first day of March and settling at $1.3035 gallon. The massive contango between March and April delivery that reached $0.3053 gallon on Feb. 26—the widest spread between first and second month delivery in 10 years, reflects the transition to lower Reid vapor pressure gasoline and expectations for greater driving demand as the weather warms.

The steep discount by the now expired March contract also accentuates the still prevailing bearish fundamentals that have converged with the well-known trend for gasoline prices to move higher from winter to spring. In their Feb. 26 Commitment of Traders report, the Commodity Futures Trading Commission showed noncommercial market participants or speculators expanded a net-long stance—a position taken on expectations for prices to increase from current levels—to a 22-month high during the week-ended Feb. 23. The bullish stance came with record open interest which shows greater commitment by the market, with open interest for the RBOB contract increasing every week in 2016.

The gasoline market is not immune to the bearish fundamentals of crude oil, with the global market still captured by massive oversupply that is expected to continue building through much of the year, although at a slower pace during the second half of 2016. A market rebalancing is not expected until 2017.

West Texas Intermediate, the US benchmark for crude oil, edged higher at the front end of the forward curve through February in futures trading on NYMEX, and began March in a technical short-term uptrend with the monthly chart showing the long-term trend has turned up. WTI could again find itself under heavy selling pressure in April when seasonal turnarounds at US refineries dampen demand for crude oil that would also weigh on gasoline ...