Gasoline Futures Slide as Market Faces Potential Test of Support Levels

Gasoline futures are leading the energy complex lower to start the week with the July RBOB contract off 6 cents in the early going, while US equity markets point modestly higher.  Gasoline prices are now down 15 cents from the high trade set last Thursday and looks like it could now be poised for a test of the $2.40 range if we don’t see a bounce soon.

Money managers were acting bullish on everything besides gasoline last week, increasing long positions and cutting shorts for WTI, Brent, ULSD, and Gasoil. The large speculators seem to be betting the gasoline rally is done for the year however as they added new shorts and cut old longs last week while the open interest in RBOB contracts surged to a 16-month high.

The FED will make its next policy announcement Wednesday, and the CME’s Fedwatch tool shows a 74% chance that the committee holds rates steady, while 26% of bettors think they’ll continue their streak of increased rates. Tomorrow’s CPI report could be pivotal to their decision making, or perhaps to the market’s expectations for that announcement.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, marking the first move higher in the rig count since Mid-April, and snapping a 5-week decline that’s seen 45 rigs taken offline. Don’t get too excited about a sudden turnaround in drilling activity though, natural gas rigs dropped by 2 last week, reaching a new 15 month low.

A gasoline tanker caught fire over the weekend and caused a portion of interstate 95 to collapse in Philadelphia, which will snarl traffic in the area for months. Reports say the driver of that truck was still missing as of this morning, and the cause of the fire is still unknown. 

Today’s interesting read from Reuters on regulatory arbitrage and the feedstock wars:  Why US subsidies are threatening Canada’s clean fuel program. This phenomenon is also why some people think Irving oil is considering (or threatening) selling its 99-year-old refining business. 

The DOE continues to pat itself on the back for operating the SPR, announcing a successful purchase of 3 million barrels in May, and planning another 3 million barrels in September in “a Good Deal for American Taxpayers”. If the DOE continues replenishing at its current pace of roughly 1 million barrels/month, it will take approximately 23 years to return to the levels we had in storage two years ago.

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