Tuesday May 17, 2016
A new week started with a fresh round of buying and June WTI pushed through recent resistance points to settle, again, at a six-month high. The front month WTI contract has posted weekly gains in six of the past seven weeks (up $1.55 last week), on the heels of noted global oil supply outages, diminished domestic oil supply production and relentless domestic gasoline demand. Monday's advance also came in concert with a published report by banking giant Goldman Sachs, a recent oil price bear, in which the bank opined that the supply / demand imbalance has quickly corrected itself (and, at the same time, upped its near-term price forecast). This week's Department of Energy report, published tomorrow, will provide another clue as to how oil supply balances look (oil stocks drew last week, and are expected to seasonally draw for the next few months).
June WTI opened Monday trading with a small gain and was again at a price top which the market failed to push through last week. The suspense of whether or not this breakthrough would occur was quickly vanquished by mid-morning, and WTI was trading above $47 (up over a dollar on the day) by noon. The afternoon session was hardly different than the morning, and the oil market closed with a flurry to settle near its highs for the day. June WTI's settle of $47.72 was the highest prompt month WTI settle since early November, 2015.
Last week June RBOB outpaced June Heating Oil (HO) by around four cents (continuing the volatility in the spread between those two indices). On Monday, though, it was HO's turn to outperform. June HO gained nearly four cents to settle at $1.4401 / gallon (highest settle in six months as well). The Gulf Coast cash diesel market has been fairly steady for the past month, though Midwest and Chicago diesel has spiked recently due to minor refining outages and potential run cuts from lack of Canadian oil supply. This stronger diesel market could draw distillates from the Gulf Coast to the Midwest to fill in supply gaps there, which in turn, could lead to a cash differential increase in the Southeast. It is worth keeping an eye on the Gulf Coast cash diesel differentials in the near future to see if this happens.