Tuesday June 28, 2016
The post-Brexit oil rout continued on Monday with prices again moving lower in response to perceived European economic turmoil … and by a white-hot dollar. The cumulative loss in the front month WTI contract, over the two day swoon, is roughly four dollars, and that August WTI contract traded down to the lows of mid-June. Yesterday’s results were not surprising, though Asian equity markets did rally, giving the impression that oil might rise. The strength of the dollar (the flight to safety), however, was too much for the market to overcome.
Overnight Sunday into early Monday, oil prices were moderately up (in tandem with the strong Asian equities), but as trading volume picked up and Europe / North America settled in, prices cascaded lower. Unlike Friday, when prices careened lower on panic selling, Monday’s retreat was very orderly. August WTI was off a dollar by mid-morning and then another dollar by early afternoon.
Though an official Great Britain exit from the European Union may take two years, the prospect of slowing economic growth (and, by default, slowing oil demand growth) was enough to signal the retreat.
Prices did rally very late in the day (last 15 minutes before the settle), recouping a decent chunk of the day’s losses. At the settle, August WTI was $46.33 (down $1.31 on the day). The late rally does auger well for a Tuesday rally.
Finished products prices were, predictably, lower, though RBOB has taken the brunt of the hit in the two day collapse. July RBOB is down almost 13-cents since last Thursday (July Heating Oil [HO] is off by nine cents). To illustrate the variability in the finished product moves (the Widowmaker trade), RBOB had been trending higher (i.e. stronger than HO) in the day’s leading up to the Brexit announcement, only to move much lower since then.
If perceived future economic distress is a reason contributing to the sell-off, that seemingly should impact HO (diesel demand?) more than RBOB (gasoline prices are already low compared to recent years). But, of late, RBOB is the weaker of the two.
NOTE: July RBOB and HO contracts expire on Thursday.
Published by PAPCO, Inc. (PAPCO)
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