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A Surprising “Weak” Already?

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050216 PricingThe old investor adage of “Sell in May, and Go Away” began in earnest on Monday, as oil prices posted their biggest single-day loss in nearly three weeks. The market was softer on Friday, and that weakness continued into the new week despite the dollar falling to its lowest level in a year. Prices moved consistently higher in April, on the backs of the weak dollar, lower domestic oil production and the anticipation of heightened demand in the coming weeks. All of those factors are still in play, mind you, despite the dips of the past two sessions, but there seems to be a sentiment that a slight correction could be in order.

June WTI began the new week (and month) quietly, trading around $46 and right in the middle of the large, psychological trading range of $40 – $50. Monday was a holiday in parts of Europe, so trading volume and news was limited. The market moved lower after the unofficial open, giving back about 75-cents in the first few hours of trading. The mid-day lulls kicked in, with limited moves after that, though a late selling spree did pull WTI down to its lows of the day at the settle. The dollar-plus drop in oil (June WTI settled at $44.78) was a bit surprising, given the weak dollar and rather strong moves in U.S. equity markets. However, as noted above, calendar May is often a very soft month for all paper products (equities, commodities, currencies). In fact, last year oil prices peaked in May / June before moving lower for the balance of the year.

The new, prompt June products contracts also settled lower, easing by three cents (Heating Oil) and four cents (RBOB), respectively. As strong as WTI was in April, the products were even stronger (both on the NYMEX and on the cash basis side), a boon to those refiners who had fully functional plants during the month. Last week, U.S. refiners were reported to have operated at 88% of total capacity, which is 2-3% below historical norms for this time of the year. This “dip” could help explain why gasoline and diesel performed so well last month, this despite burgeoning stock levels of these products in most areas of the country.

Published by PAPCO, Inc. (PAPCO)

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