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Oversupply Continues Bearish Action

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Daily Settlement Prices

After trading higher early in the day on Tuesday, oil prices reversed course to close lower and settle below $40 (WTI) for the first time since April. The early bounce, likely technically driven off of $40 price support, recouped a good portion of Monday’s loss though the day’s fairly stunning turnaround. This does not portend well for the bulls. While the NYMEX continues to struggle on the heels of fully laden supply and not-as-much gasoline demand support, cash differentials in several parts of the country (most notably the Chicago area and the Gulf Coast) are well supported by refining glitches. The Department of Energy (DOE) will publish its weekly inventory summary this morning, with expected draws in all three major product categories. The last few DOE reports have been bearish, including builds in gasoline, which has certainly contributed to the market’s extended malaise.

September WTI held $40 on Monday, and that support seemed to give the market some respite early on Tuesday. By mid-morning, WTI was up nearly a dollar (and over $41), with multi-cent gains for the finished products. That strength was short-lived, though, and a round of selling (without any particular news behind it other than some strong selling in equity markets) hit oil hard. By noon, the early gains were gone and the defense (or defence, as our English friends say) of $40 began again. The relentless selling, or long liquidations, was too much for technical support to bear, and WTI did sufficiently break through $40 by day’s end. The September WTI settle ($39.51, down fifty-five cents) brings the cumulative loss to nearly five dollars in the last ten days (over ten percent). The next technical support level for oil is around $38.50, and we may visit that soon enough if today’s DOE stats do not provide some bullish information.
RBOB and Heating Oil held their own on Tuesday, each settling near flat on the day, though down a few cents from the early highs. There have been several announced refinery run cuts of late (mostly in the Northeast, where supply is so abundant that inbound cargo ships fully laden with product have been diverted elsewhere), which will help ease the supply glut. Midwest refinery outages (Whiting, Illinois and Robinson, Illinois) have boosted Chicago-area prices, while problems in Pasadena, Texas and Alliance, Louisiana are lending support to Gulf Coast / Southeast markets.
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