Gasoline Prices Could Turn Highier Again In November

At Tuesday’s settlement of $2.0341 per gallon on the New York Mercantile Exchange, RBOB futures for September delivery were 11 percent lower from the near 4-year highs of $2.2855 per gallon set in May by the then front-month contract for gasoline. With less than a month left for summer road trips in the United States, analysts have all but abandoned expectations of RBOB scaling in coming weeks the $3 per gallon level projected earlier in the year.

Those heady forecasts were initially hatched as US crude oil itself hit 3-1/2 year highs in recent months on tighter supplies, peaking above $75 per barrel in July. Investing.com's daily technicals have a “Strong Sell” on RBOB, with Fibonacci patterns showing resistance building from $2.0582, or 2.4 cents above Tuesday’s settlement, to $2.0687 and through $2.0856. Strong support is only seen below $2, at $1.9970. In fact, the technicals call for a “Strong Buy” if the 200-day moving average of 1.9979 is breached.

Fundamentally though, gasoline may have more going for it. Seasonally, demand for motor fuels in the US declines rapidly from September heading into the fall and winter seasons as people resort to driving only when necessary. But this November could be an anomaly for both crude and RBOB as the Trump Administration gears up for an all-out enforcement of sanctions on Iranian petroleum exports that could squeeze global supplies, sending energy prices spiking.

“We think the best chance for a little bit of a downturn in gas prices comes in September and October, when crude oil will also likely be down during seasonal refinery maintenance,” said Tom Kloza, global head of energy analysis at Oil Price Information Service (OPIS) in Rockville, Maryland. “But come November 4 onward, the date for the sanctions on Iranian oil, the market could be trending higher,” Kloza added. “Also, the lows that might occur this October will not be as steep as the decline in recent years, as people try to hedge against the anticipated squeeze on Iranian supplies.”

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now

Iran produces approximately 2.5 million barrels of oil a day and about one million of those could be at risk under the sanctions, a move Donald Trump says is to punish the Islamic state for its alleged nuclear program. Mindful that the sanctions could cause a surge in US gasoline prices at the pump, Trump has proposed to sell crude from the nation’s Strategic Petroleum Reserve to ensure adequate domestic refining supply. With the US Congressional elections set for November 6, some are skeptical regarding whether the president would want to risk selling oil reserves then if the political climate wasn’t favorable.

Wall Street’s leading forecaster of energy prices Goldman Sachs), in an Brent will also be at least $80 per barrel or more in the second half partly due to tougher-than-anticipated U.S. policy against Iran. Brent currently trades below $73 a barrel. If it rallies $7 or more a barrel, it could carry US crude and gasoline higher too.

Kloza’s OPIS, in an end-June forecast, had expected retail US gasoline prices to average $2.77 in the second half, with July and August numbers considerably higher than the succeeding four months.

“But each day past July 15 probably increases the odds that we won't have episodic spikes to above $3 gallon,” Kloza said on Tuesday, referring to pump prices that had stagnated at $2.75-$2.85 a gallon since.

He cited large Asian gasoline imports into the US and even Canada, the lack of Atlantic storm signals this hurricane season and strong refining margins of nearly $20 for a barrel of gasoline as reasons for the range-bound pump prices, despite heavy drawdown at times in weekly US fuel stockpiles.

“Certainly now, we believe the yearly highs are history and it's a question of how low we go in the last 120 days of the year,” Kloza said, adding that Iran and Trump, however, remained wildcards that could severely shock prices to the upside.

Jim Ritterbusch, founder of Ritterbusch & Associates, an energy markets consultancy in Galena, Illinois, concurs.

“There’s plenty to stop the upward march of gasoline for now,” Ritterbusch said. “In the past month or so, demand has been weakening significantly. So, I don’t see a lot to sustain daily price strength – notwithstanding, of course, what happens in November with the Iranians and Trump.”

-- # -- # -- # --

Written By: Investing.com