Monday July 25, 2016
With a relatively quiet news front on Friday, the attention of the market was drawn to the continued theme of oversupply, both domestically and globally. As a result, the market was weaker for most of the day. Front month WTI, which is now the September contract, was off about 50 cents for the day, and tested the recent low (around $43.70) before bouncing off and settling at the $44.19 value. For the week, front month WTI (last week a mixture of days of Aug WTI and Sept WTI) declined four of the five business days, as the overall bearish sentiment remains in the market.
While on the surface it would appear the RBOB contract was an exception to Friday’s down day, the strength was predominantly in the front month. The rest of the RBOB curve was weaker on the day, and as a result, the carry structure flattened out slightly with the front spread actually trading in slight backwardation for part of the day. This strength in gasoline structure is interesting, as the glut (which normally promotes carry) of the product has been dominating news. However, it is more likely that this move in structure was more the result of a thin Friday, instead of the market interpreting the gasoline glut as the new normal.
One piece of news, from the quiet day, was the weekly release of the Baker Hughes rig count. This showed an increase of 14 oil rigs for the week. Although the overall number is almost 300 less than last year, the trend of increase rig counts in the past couple of weeks is worth noting. The market does not pay as close attention to the weekly number but will surely factor in the trend.
Published by PAPCO, Inc. (PAPCO)
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