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OPEC Mutterings Spur Bullish Action

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Boosted by murmurs and conjecture from some unhappy OPEC members, the oil market rallied on Monday with front month (September) WTI closing at its highest level in two weeks. After the early summer rally that boosted oil into the low $50s, the market slid through July and prices are back to levels last seen in the spring when OPEC hawks voiced similar ‘woe-is-me’ rhetoric. While the next official OPEC meeting is still three months away, continued “low” prices (in the cartel’s mind, at least) could prompt more rumors and press conferences. Either way, the market rallied on this talk (ex-RBOB) and has gained over three dollars since bottoming out last Tuesday.

WTI traded in the black all day, gradually moving higher on momentum buying and, possibly, on some short covering. Trading volume remains quite high, and open interest (the total number of open futures / options positions) is at its highest in six months. While RBOB severely lagged pack (bad day for refiners), the WTI flat price move was substantial enough to call the day a success for market bulls. A late dip did nothing other than limit the day’s ultimate gains, and September WTI settled at $43.02 (up $1.22 from Friday).
While the initial catalyst of the recent market move was gasoline (last week’s DOE report showed a large gas draw), the recent moves higher were hardly influenced by RBOB at all. Apparently the spectre of the end of the high demand, summer driving season has led to some of the gasoline bulls cashing out as the RBOB curve has severely lagged WTI and Heating Oil in the past few days. Even the NYMEX gasoline market structure, deeply backwardation because of the shift from summer grade to winter grade specs, took a big step back on Monday (that backward structure is much less so than in previous years, owing to the large product overhang in the northeast). On Monday, RBOB lost a penny, Heating Oil gained two pennies and the spread between the two is very narrow again.


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