When Will the RBOB Rally Finally Run out of Gas?
???? Fundamentals
Motorists in the U.S. normally get some relief in the pocketbook when filling the gas tank in the winter months, as the seasonal switchover to conventional blends and lower demand usually translate into lower gasoline prices. The winter of 2012-13, however, is shaping up to be an anomaly, as average cash prices are at their highest levels for this time of year.
Lower refining utilization is one reason being attributed to higher Gas prices, as operating rates have been stuck in the mid-80% for the past several weeks due to seasonal maintenance and unexpected operating issues. Even though refining demand for Oil has been cut, WTI futures prices have been strong, with front month futures up over $7 per barrel since the start of 2013.
Thursday’s price spike above 3.1300 in the March contract may have been caused by a surprise drawdown of gasoline inventories last week (down 803,000 barrels), which is heightening many traders’ concerns about tightening supplies in the near-term. Though front month RBOB Gasoline futures are trading at their highest levels since September of last year, it is still unclear if the current rally is sustainable in the long-term.
First, after a near vertical run-up in prices from 2.7500 to 3.000, we saw the market start to consolidate in a band between 3.000 and 3.0500 for nearly two weeks, which was the first pause in the rally in 1 month’s time. Seasonal refinery maintenance should be completed in the near future, which should allow refinery utilization to increase, allowing fuel inventories to be replenished heading into spring.
Finally, we should also note that many speculative accounts are currently holding a near-record net-long position in RBOB futures. This factor may heighten the potential risk of a significant price correction once the bullish momentum starts to turn and weak longs rush for the exits.
???? Technical Notes
Looking at the daily chart for March RBOB Gasoline, we notice prices breaking out to the upside after consolidating in a narrow 5-cent price range for the past 2-weeks.
The 14-day RSI, which peaked at a reading near 80, is now barely in overbought territory, with a current reading of 70.22. We have to look back to April of last year to find the next resistance level for front month RBOB futures, which is seen at the 3.1528 price level. Support is seen at the low made during the recent consolidation phase at 2.9825.
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