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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

In a year when soothsayers’ crystal balls are as foggy as London in November, September encompassed a few unexpected surprises for the US gasoline market that underpinned gasoline prices and sharply cut down an inventory surplus. This was especially true for the East Coast, where gasoline supply plunged from a 26-year high to a 21-month low.

At $1.4631 gallon, Reformulated Blendstock for Oxygenate Blending futures traded on the New York Mercantile Exchange ended the third quarter 20cts higher than in 2015 and flat with the end of the second quarter. The gasoline contract advanced nearly 15cts gallon on the spot continuous chart from the end of July–the height of peak season demand, with implied gasoline demand averaging 6.7% above the five-year average from Memorial Day through Labor Day.

Speculators in late September where far more bullish then in late July, moving to a 63,592 net-long position in NYMEX RBOB futures as of Sept. 27 data from the Commodity Futures trading Commission shows, which was the largest long position for the noncommercial group since a week before the start of Memorial Day on May 23. The noncommercial group made a 43.8% net-change in their long stance from the middle of summer, adding 19,378 futures contracts to the long side of their ledger since July 25.

Two well publicized events and a hurricane transformed the bearish oil market briefly experienced in early August, while another powerful hurricane, Matthew, has the potential to disrupt shipping lanes along the eastern seaboard in October.

OPEC Production

Initially, it was seen mostly as empty rhetoric and posturing as oil ministers with the Organization of the Petroleum Exporting Countries discussed production cuts in August and September to help stabilize the oil market, where an ongoing imbalance threatens to press global oil prices lower. Growth in world oil demand was slowing, inventory continued to build, and production was well above previous expectations. Indeed, OPEC was producing at an eight-year high, with Saudi Arabia at an all-time high, while output from non-OPEC producer Russia was near a post-Soviet high. US crude output declined less than expected, and producers were reactivating oil rigs, with the US rig count reaching a 7-1/2 month high in ending September, according to View Full Article