Gasoline’s New Normal Could Be Below $2 Till November And Beyond
Investing.com | Sep 05, 2018 11:30
Ease your feet off the pedal, gasoline fans: prices of the fuel are unlikely to race much higher for now, with some traders betting on a drop of as much as 10 percent through October. With Monday’s Labor Day unofficially flagging an end to summer road trips in the US, the view for gasoline futures on the New York Mercantile Exchanges is decidedly bearish.
Until June, gasoline had some of the most stellar returns for investors betting on higher prices of the motor fuel, with February being the market’s only negative month in the first half. But it fell nearly 9 percent in total over July and August as some of the weakness in US crude oil carried over.
Year-to-date, gasoline remains up 10 percent. But lower settlements on Friday and Tuesday—leading into the Labor Day weekend and just after—signal softening confidence in a market used to seeing stronger sentiment this time of year.
Investing.com’s technicals have been calling for a “Strong Sell” on gasoline. The fuel, specifically referred to as Reformulated Blendstock for Oxygenate Blending (RBOB), could spend the coming weeks under $2 per gallon—a level that the so-called bulls in RBOB had fought so hard to stay above since April.
h3 A “Very Lucrative” Short/h3“During this morning’s highs, it went up to $2.06 per gallon and we shorted it right away and it came down to $1.98,” Phil Davis, trader at PSW Investments in New York, said in an interview with Investing.com on Tuesday. “That was a gain of about $2,500 per contract, a very lucrative short for us.” He added:
“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there...There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”
In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.
h3 Higher Pump Prices, Stockpiles/h3“With every holiday, we drive the price of gasoline up in anticipation of demand. But we’re constantly disappointed because every new car today is averaging 35 miles per gallon versus the 25 miles we get on older cars. That’s 40 percent less gas consumption. And it’s happening every year.”
“The population is basically static and people aren’t driving more miles. So, the usage of gasoline continues to go down as we get more fuel-efficient cars. That’s why every time there’s a big spike in gasoline driven by expectations of demand, I will just short it.”
While RBOB futures have slipped beneath $2, pump prices of gasoline are well above year-ago levels and more than 50 percent higher than their cyclical low in February 2016, according to the charts show.
h2 Near-Term Price Volatility Likely/h2Ritterbusch added:
"We might see some volatility that could keep the market up for another week or two, but by the second half of September, we should see it getting weaker...It could get pulled up along with crude on the Iranian sanctions, but probably not as much as gasoline bulls hope.”
Reuters oil analyst John Kemp noted in a mid-August commentary that lack of growth in gasoline contrasts with distillate fuel oil, where consumption between March and May was up by almost 75,000 bpd compared with 2017, spurred by rising industrial output and strong growth in freight.
PK Verleger LLC said in a report last week that US housing starts were another key determinant of gasoline consumption, and the indicator was on a downward path. The agency said:
“The declining affordability of housing combined with rising construction costs and the federal tax law changes will probably constrain housing starts...This means we may not see significant increases in domestic gasoline consumption in 2019, 2020, or even later.”
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.