Product Prices Top Out

  1. June gasoline crack spreads break under $18.00
  2. Spread buying November ULSD, selling RBOB lifts off lows
  3. Failure of crude oil freeze talks highlights puzzle over Saudi intentions
  4. Natural gas futures caught in a range

Al pic 2009_cropped

Alan Levine Chairman, Powerhouse




Table covers crude oil and principal products.  Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at


The Matrix

May is an important month on the futures market calendar. It tends to be the top of the diesel market.  May is often the end of the winter RBOB rally, coinciding with Memorial Day.

Traders see this as a time to evaluate trades exhibiting traditional seasonal behavior.

Spread Of ULSD Minus RBOB, Basis November, 2016


(source Reuters)

A trade typically considered in spring buys November HO and sells RBOB. Fundamentally, RBOB has finished its spring run to the highs while ULSD prices have already lost their spring luster and values for next winter will react to construction and early winter buying.

The chart above shows the current situation with this spread. It bottomed on April 11th at 3.76 cents, HO being the more expensive. Since then, the spread has widened, trading at 10.44 cents HO over. Its recent high of $18.61 was reached on February 8, 2016.

The end of the RBOB run draws our attention to the RBOB crack spread. Shown below is the recent history of the June RBOB crack spread. As anticipated, the spread rallied earlier this year, ranging from $15.13 on February 9 to $23.16 as March ended. After a period of consolidation, crack spread prices fell sharply, reaching $17.83 on May fifth.

Relatively high refinery usage, reflecting large volumes of cheap crude, suggests growing availability of RBOB as the summer advances. This could press gasoline cracks even lower.

RBOB Gas Crack, Basis June, 2016


(source – Reuters)

Geopolitically, the failure of the Russo-Saudi Arabian production freeze agreement has created an uncertain situation for global crude oil markets. Following Iran’s rejection of Saudi’s all-freeze or no-freeze position, prospects of developing a long-term strategy among the OPEC group are unclear.

Iran is holding out for a production management framework in which the group establishes national output objectives – much like those used by OPEC before prices collapsed. Iran is not alone in wanting this approach; Algeria also favors this avenue.

Of course, this was the problem for Saudi Arabia in the first place. Prices would soften, Saudi Arabia would cut output; other producers would either ignore the cuts or simply produce enough to fill the supply hole. Small wonder the quota system was dropped in 2011!

Complicating the situation is new production from countries with long-standing historical output shortfalls. Iran has effectively excused itself from limits because, it argues, it has to make up for sales lost during its sanction time. The country is now exporting over two million barrels daily out of daily production of 3.8 million barrels.

Supply/Demand Balances

Supply/demand data in the United States for the week ending April 29, 2016 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 2.1 million net barrels during the week ending April 29, 2016.

Builds were reported in stocks of gasoline, fuel ethanol, propane, and other oils. Draws were reported in stocks of K-jet fuel, distillates, and residual fuel.

Crude oil supplies in the United States increased to 543.4 million barrels, a build of 2.8 million barrels.

Crude oil supplies increased in two of the five PAD Districts. PAD District 1 (East Coast) crude oil stocks increased 2.3 million barrels, and PADD 2 (Midwest) crude stocks grew 3.4 million barrels. PADD 3 (Gulf Coast) stocks experienced a decrease of 2.9 million barrels, and PADD 5 (West Coast) stocks fell 0.1 million barrels. Crude oil stocks at PAD District 4 (Rockies) were unchanged from the previous report week.

Cushing, Oklahoma inventories increased 0.3 million barrels to 66.3 million barrels.

Domestic crude oil production decreased 113,000 barrels daily to 8.825 million barrels per day.

Crude oil imports averaged 7.660 million barrels per day, a daily increase of 110,000 barrels.

Refineries used 89.7 per cent of capacity, an increase of 1.6 percentage point from the previous report week.

Crude oil inputs to refineries increased 139,000 barrels daily; there were 15.986 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 283,000 barrels to 16.423 million barrels daily.

Total petroleum product inventories saw a decrease of 0.7 million barrels from the previous report week.

Gasoline stocks increased 0.5 million barrels; total stocks are 241.8 million barrels. Demand for gasoline increased 187,000 barrels per day to 9.502 million barrels daily.

Total product demand increased 413,000 barrels daily to 20.242 million barrels per day.

Distillate fuel oil supply decreased 1.3 million barrels; total stocks are 157.0 million barrels. National distillate demand was reported at 3.946 million barrels per day during the report week. This was a weekly decrease of 176,000 barrels daily.

Propane stocks increased 0.7 million barrels to 71.9 million barrels. Current demand is estimated at 1.1 million barrels per day, an increase of 250,000 barrels daily from the previous report week.

Natural Gas

According to the EIA:

Working gas stocks continue upward climb. Working gas in the Lower 48 states posted its third straight week of net injections. Net injections into storage totaled 68 Bcf during the storage report week, compared with the five-year (2011-15) average of 64 Bcf and last year’s net injection of 77 Bcf during the same week. As a result, the surplus in storage compared with the five-year average rose from the previous week to 836 Bcf, and the surplus compared with year-ago levels decreased to 861 Bcf.

Natural gas futures prices remain in a holding pattern. Support lies around $2.00 per MMBtu and resistance at $2.23. Neither bullish arguments based on declining production nor bearish ideas around growing storage in an already well-supplied market have taken control.


Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on future markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Past performance may not be indicative of future results. This is not an offer to invest in any investment program.

Powerhouse is a registered affiliate of Coquest, Inc.

We’d like your feedback.
Please respond to
or call: 202 333-5380

Copyright © 2016 Powerhouse, All rights reserved.