Is There Such a Thing as Having Too Much Gasoline?
Fundamentals
The petroleum product futures, i.e. Heating Oil and Gasoline, have been mired in a month-long consolidation pattern, as lackluster domestic demand and ample supplies in storage have kept bullish momentum at bay. Bearish traders may be gaining the upper hand in the Gasoline market, as refineries begin the switchover to winter blends of Gasoline, which can be used throughout the U.S., as opposed to "custom" summer blends required by environmental regulations in some of the most populous areas of the country. These summer blends trade at premium prices and can only serve niche markets. U.S. motorists have certainly curtailed their gasoline usage, as the weekly SpendingPulse report shows U.S. gasoline usage falling by 0.3% to 8.978 million barrels per day for the week ending September 24th. This drop in Gasoline demand was reflected in the American Petroleum Institute (API) weekly energy stock report which showed that U.S. Gasoline inventories grew by 3 million barrels last week. Gasoline bulls will note that a French workers' strike affecting key oil shipping ports could curtail Gasoline imports into the U.S. However, given the high supplies of Gasoline in the U.S., it would take a sharp increase in Gasoline demand to eat through the current surplus and exert bullish pressures on prices.
Trading Ideas
With winter approaching the northern hemisphere, energy traders and refiners will likely begin to turn their focus towards the Heating Oil market, which is an important heating fuel in the Northeast. Many traders who are expecting Heating Oil prices to gain relative to those of Gasoline may wish to investigate buying winter month Heating Oil futures and selling winter month Gasoline futures. For example, January Heating Oil is trading at 2.1935, while January Gasoline is trading at 1.9665, or a difference of 0.2270 in favor of Heating Oil as of this writing. Traders who are long Heating Oil and short Gasoline would want to see the difference continue to widen in Heating Oil's favor.
Technicals
Looking at the daily chart for December RBOB Gasoline, we notice prices appear to have been caught within a 30-cent trading range since the middle of May. The moving averages paint a mixed picture, with prices currently above the short-term 20-day moving average, but still well below the longer-term 200-day moving average. The 14-day RSI neither favors bears nor bulls, with a current reading of 51.23. Bulls will seemingly gain control should December RBOB trade above the recent highs near the 2.1000 area, and bearish traders will likely flex their muscles should prices close below recent lows just below the 1.8000 area.
Mike Zarembski, Senior Commodity Analyst
