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50 Still the Hill to Climb

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Daily Settlement Prices

Oil prices settled relatively unchanged on the last day of the calendar month much like the previous few days. A late selling spree though could portent a weak start to the new month.

Much like the streak in mid-May, in which the front month WTI contract settled with a $48-handle for a week in a row, we are now in a period where the WTI contract has settled at a $49-handle for the past four trading days. This stability is partly due to timing, with the current streak happening around the long U.S. holiday weekend with fewer participants and less natural volatility, but it also implies some confusion on future price direction. Sure, there are still supply problems abound but the flat price has risen quite a bit in the last six weeks (roughly two dollars per week, on average) and the $50 price level will likely prove (and has proven, to date) to be a strong hill to summit.

On expiration day for the June RBOB and Heating Oil contracts, the July WTI contract traded in a dollar range for the duration and even briefly breached $50 just before noon (a foray into the $50’s also happened very briefly one day last week). The small strength was short lived, and an abrupt and month-closing sell off brought the market to its lows at the daily settlement. There has been a dearth of news in recent days, absent of speculation on Thursday’s OPEC meeting, so the nature and force of the decline is worth noting. July WTI settled at $49.10, down 23-cents on the day. For the month of May, the front month WTI contract was up $3.18, a healthy seven percent increase.

NYMEX Gasoline (RBOB) has been the softest component of the energy market in the last week, though that paper weakness has been offset by strong cash differentials in many parts of the country. Continued pockets of refinery problems are impacting differentials in multiple markets, making gasoline a tough ticket in some locations. For the record, June RBOB settled at $1.6149 / gallon on Tuesday (down nearly two cents), and that contract was up merely a penny during the month (whereas Gulf Coast gas differentials were up at least seven cents in the last two weeks).

Published by PAPCO, Inc. (PAPCO)

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