Range Bound Volatility

Daily Settlement Prices

Oil prices eased for the second straight day, fading in the afternoon session despite ongoing weakness in the U.S. dollar. Despite the day’s loss, the front month WTI contract has traded in relatively narrow range since the middle of last week (following the inventory summary) and certainly above the psychological $40 mark. In fact, front month WTI has settled over $40 every day (except one) for the past two weeks, and that one day (the Monday after Doha) was only fractionally below the figure. While the “failure” of the past few days may be a sign of market consolidation after two weeks of price advances, there is tangible support in the oil market. Refining appetite for physical oil should only increase in the coming weeks, given the return of excellent margins and the end of common spring maintenance. Still, $44 seems to be a sticking (resistance) point for WTI, and it wouldn’t be surprising to see the front month contract bang around just above $40 for the near term.

Monday’s trading really saw two distinct trading patterns. In the morning, WTI had two violent moves and offset each other (opposing seventy-five cent moves, up and down, early in the day). After those fireworks ended, just before noon, the market entered the slow fade of the day, and even the dollar’s weakness (which should provide price support to oil) could not prevent the flagging flat price. There wasn’t enough negativity in the market to cause June WTI to really collapse, but there was enough bearish quality in the move that a negative settle was certain. At the settle, June WTI was down a dollar at $42.64 (and it now off $1.64 in the last two days). Still, even with these two straight negative settles, WTI is closer to resistance at $44 than it is to support at $40.

The May finished product contracts, which expire on Friday, mimicked the WTI moves throughout the day. Each of these product contracts settled down two cents on the day (May RBOB at $1.5131 / gallon, May Heating Oil at $1.2903 / gallon). The market’s strength in the past two weeks hasn’t necessarily reached the NYMEX RBOB market, which is essentially flat in that time. However, the Gulf Coast cash gasoline market has been quite strong recently, as a spate of unexpected refinery glitches (ExxonMobil’s Baytown, Shell Deer Park) has raised supply concerns in the Southeast. Gulf Coast CBOB and RBOB differentials are up over a nickel in the last week.

Published by PAPCO, Inc. (PAPCO)

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