Monday June 20, 2016
Oil prices responded Friday to the six-day down streak with aplomb, gaining support from the increased likelihood of Great Britain remained in the European Union (EU) and on good, old-fashioned bargain hunting. The week-long plunge lopped five dollars off the front month WTI contract, putting that vehicle in danger of retrenching to “correction mode”, where further price dips were likely. That said, Friday’s strong move to the upside erased a good portion of those losses.
The British population votes later this week on whether or not she should remain part of (and the strongest economic member of) the EU, and recent polls now seem to indicate a lean towards staying. Oil market bulls fear that if Great Britain leaves the EU (affectionately known at “Brexit”), that group could fall into greater economic turmoil, which would have a decided impact on oil demand. Still, even with Friday’s strong rally, prices did close lower for the week, only the fourth time that has happened in the last four months.
From the start of Friday’s session, there was little doubt that the day would be “risk on” (i.e. prices going higher). The aforementioned speculative views on Great Britain, and a firm bullish sentiment heading into the weekend, put the market in rally mode overnight and into the unofficial market open on Friday. Prices moved higher in linear fashion through the day, with July WTI crossing $47 (up a dollar) by mid-morning and not looking back. Trading was a little limited (summer Friday), but that can’t be blamed on the firm direction of the market. One late, last push brought prices to their high point of the day, and July WTI settled up $1.77 at $47.98. This essentially erased Thursday’s losses, which were the biggest of the six-day plunge. For the week, July WTI was down a little more than a dollar. (NOTE: July WTI contract expires on Tuesday)
The finished products joined the rally parade on Friday, with RBOB gaining four cents and Heating Oil climbing by six cents (though both had multi-cent losses for the week). The RBOB / Heating Oil spread (previously referred to as the Widow Maker trade) is down to less than two cents (RBOB over HO). This spread was well into double digits a few weeks ago.
While Heating Oil has moved in tandem with WTI for a while, RBOB has been the weak sister of the petroleum patch, with PADD I (Northeast) gasoline inventories extremely robust (and building on the historical surplus). High volumes of gasoline imports from Europe are helping to swell Northeast stocks.
Published by PAPCO, Inc. (PAPCO)
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