Product's Last Stand
A day after the global energy markets were coming to grips with a possible major slowdown in China and perhaps the rest of the world, oil products are getting up off the mat. Perhaps more than anything it is possible that we have just got oversold enough where the market expects that the break in price could actually help the weakening demand side of the equation.
Yesterday's stunning drop in China's manufacturing data preview along with other data demand expectations have ratcheted down. The economy is far from being on fire and there are fears that the summer doldrums could inflict pain on the global economic recovery.
What is even more impressive is that this rebound is coming as a volcano in Iceland is slowing demand for products even more. Dow Jones News Wires report that, "Europe's air-traffic management agency Tuesday said more than 200 schedule flights had been cancelled due to the clouds of volcanic ash drifting toward the continent from Iceland amid fears the disruption could spread."
It is clear the products have fallen, but they have fallen too far too fast. If this week's data does not show signs of better demand then this could be the bulls’ last stand. July RBOB gasoline still has suffered some severe damage to the charts in recent weeks, yet we could see a significant snap back before we resume the downtrend. July RBOB still looks like we are headed down to the 26500 area.
Heating oil, the proxy for diesel and jet fuel that is not going to be used, is also trying to make a stand. Now there is a slight possibility that the volcanic ash could slow some production of crude in the North Sea as helicopters out to the rigs will be slowed.
Still the market focus will be more on the demand destruction side of the equation. Gasoline inventories will take center stage in this week's inventory report. Will we see signs of demand or better yet, signs of soaring production? All eyes will be on gasoline.