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The No Doha Hangover

The oil market shrugged off the bearish implications of Sunday’s Doha Party, settling only modestly lower on yesterday after the much-ballyhooed oil summit failed to produce an agreement on how the world’s production leaders could dampen the supply / demand imbalance. As reported in yesterday’s Fuel Market Report, oil prices moved lower with alarming alacrity on Sunday night after the Doha meeting (May WTI was down nearly three dollars at one point) but had recovered somewhat by early Monday morning. At the unofficial market open, WTI was down a little less than two dollars which proved to be the low point of the open-outcry day. The day’s strong recovery in flat price, in the wake of the disappointing (from a bulls perspective) Doha outcome, is a strong sign that the oil market is in “buy” mode, which means to say that bullish news (strong gasoline demand, weak dollar, declining domestic oil production) is in focus while bearish news (continued global overproduction, floating storage of distillate products) is seemingly ignored.

As mentioned above, the early morning prints (trades) were the lows of the day, and WTI systemically moved higher throughout the day (led, somewhat surprisingly, by Heating Oil). By early afternoon, May WTI had not only recaptured $39 (down a bit more than a dollar from Friday) and $40 (strong pivot point and only moderately down from Friday), but had moved to break-even. In other words, the three dollar loss on Sunday night had been completely erased.

A somewhat late fade pushed WTI into the red for the day (along with RBOB but not Heating Oil), and May WTI settled down 58-cents at $39.78. Though the market did settle below $40 for the first time in nearly a week, that it recovered so much after the surprising (nee disappointing) Doha meeting is price supportive.

The volatility in the product price moves continues, as RBOB considerably lagged the pack (May RBOB settled over two cents lower) while Heating Oil outperformed for the day (settling fractionally higher). The finished products are often traded as spreads to one another and, as such, have stretches where one is much stronger than the other (position adding or subtracting). Yesterday’s strong HO, at the expense of RBOB, is an example of that. This is especially true since the distillate overhang is much more pronounced than that of RBOB, and gasoline demand is faring well while distillate demand is not. Would not be surprised, though, to see a reversal and a stronger RBOB at some point in the near future.

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Published by PAPCO, Inc. (PAPCO)

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