July, the new front month WTI contract, behaved very much like how the old one, June (expired), as the market traded in a fairly narrow range for the day yesterday. Though oil prices are up about three dollars, cumulatively, in the last few weeks, there has been a lull in that advance as the front month WTI (and Brent) contracts are sitting just below $50. In fact, including Monday’s settlement, the front month WTI contract has settled with a $48-handle in six straight sessions.
The recent macro narratives remain in place, with the global supply / demand oil balance quickly turning course (declining domestic production, outages in Canada and West Africa), but looming interest rate increases and a stronger dollar are limiting what could be an all-out bullish advance.
July WTI began its reign as the prompt contract about 70-cents stronger than where June WTI expired. Other than that natural increase from the contango market structure, however, the contract didn’t make any strong moves in either direction. Though the day charts would show what look to be two large intra-day moves (one up and one down), those moves were really only 50-cent changes and indicate how slow the price action was. July WTI did reclaim $48 late in the day, ensuring yet another $48+ settlement, and the contract settled at $48.08 (down 33-cents from Friday).
The finished products were also fairly indifferent on Monday, with June RBOB gaining a penny ($1.6456 / gallon settle) and June Heating Oil losing one ($1.4775 / gallon). The structure of both markets has narrowed considerably (i.e. less contango) in the past two weeks. That is, the “strongest strength” in both RBOB and HO has been in the very front of the curve. Gasoline cash markets have also strengthened of late, with Windy City (Chicago) gasoline prices the strongest East of the Rockies. With some limited refinery production in the Midwest, strong gasoline demand and the upcoming start of the traditional driving season, it is not hard to forecast continued strong gasoline cash markets and rack prices in the near future.
Published by PAPCO, Inc. (PAPCO)
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