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Just Another Manic Monday?

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Daily Settlement Prices

Oil prices rallied on Monday, ex-RBOB, after Federal Reserve Chair Janet Yellen suggested that interest rate hikes were not forthcoming. This led to a minor sell-off in the dollar and an increase in equities and commodities.

After settling lower at the end of last week, and “breaking” below $49 (a soft break), July WTI rebounded to close again with a $49-handle and again in the shadow of the psychological $50 barrier. While a single settle above that number would not necessarily signal another round of short covering and an ample move higher, a few days in a row might start that trend.
In addition to the interest rate speculation, continued supply issues remain. Wednesday’s Department of Energy inventory summary, which will incorporate data from Memorial Day weekend, could give a glimpse into how remarkably strong gasoline will be this summer.
WTI traded in the black all day on Monday, beginning the day just above $49 (which was up 50-cents) and then cruised from there. The mid-morning speech by Ms. Yellen only added to the day’s bullish fervor, and the front month contract traded ‘oh so close’ to $50 during the day (topping out at $49.90 in the early afternoon).

Aside from the peculiarly weak RBOB contract, energy was on the move on Monday. At the settle, July WTI was up over a dollar at $49.69 (back in the comfortable $49-handle range). Though the gain yesterday only essentially erased the losses from last week, it does seem to indicate there is more upside price risk than downside.

Despite WTI’s strength, the RBOB market has struggled of late and that was nowhere more apparent than on Monday. RBOB was in the red all day, ultimately losing over a penny on the day (July RBOB closed at $1.5887 / gallon). The paper gasoline market is off by over a nickel in the past few weeks, though that has been offset by stronger cash differentials in the Midwest and the Gulf Coast. The New York Harbor market, the NYMEX delivery location, is fairly well supplied of gasoline.

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