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Gasoline Futures Hit The $4 Mark For The First Time Ever This Morning

Monday, May 16 2022
Market Talk

Gasoline futures hit the $4 mark for the first time ever this morning even though oil and diesel prices are selling off to start the week. 

We’re approaching one of the busiest demand weeks of the year with tight supplies in many US markets, and much tighter supplies elsewhere around the world, which helps explain the 50 cent jump in gasoline futures over the past 4 trading sessions. Then again, we’re also in the seasonal peaking window for gasoline prices, so don’t be surprised to see a big pullback before the end of May.

On the bearish side of the ledger this morning, reports of a sharp slowdown in economic activity in China (which also happens to be the world’s largest importer of energy) and a warning that the US might be next.  

Those reports may help explain why diesel prices continue to pull back and trade at a discount to gasoline despite warnings of a potential need for rationing across the East Coast this summer as US refineries are already running near capacity following a rash of closures the past two years leaving no good options to solve the shortages.

Money managers followed a pattern last week, reducing old long positions and adding new shorts with WTI, RBOB, Brent and Gasoil contracts just in time to get run over by the surge in prices to end the week.   ULSD contracts saw the opposite with a small amount of new length added and a large amount of short covering that missed out on the subsequent pullback in diesel prices.  In other words, it seems like hedge funds continue to struggle to get a grip on the petroleum market, which may explain why Brent open interest dropped to a new 5 year low last week and ULSD OI remains near its lowest in over a decade. 

Baker Hughes reported 6 more oil rigs and 3 more natural gas rigs were put to work in the US last week, with Oklahoma taking the state lead adding 4 rigs while a handful of other states added 1 each.  The Permian Basin, home to nearly 60% of all active rigs in the country, held steady at 334 rigs for a 3rd week.  Last week the Dallas FED released a report explaining why oil producers won’t be the solution to high gasoline prices this year.  

Click here to download a PDF of today's TACenergy Market Talk.

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