Traders contemplate Fed’s options for QE3

Will they are won’t they?

For oil traders, what the Fed does is key. Oil has been unmoved lately with the disgusting and evil events in Libya and the demonstrations in Egypt, mainly because crude has been well supplied. Unlike the uprising in Libya on the way to overthrowing Gadhafi, North Sea production is at the highest level in five years, easing concerns for European refiners who relied on those high quality crude blends. OPEC is still pumping over 30 million barrels and US production is rising.

As far as products, we are seeing the heating oil versus gasoline, or RBOB spread as it is known by traders, is taking off.  Traders put on the hurricane hedge play by buying RBOB ahead of the storm and selling heat as a hedge. Now with refineries coming back on line and winter approaching, winter blends and the long heat short gas spread may continue to rock. Bloomberg News reported gasoline slid the most in three weeks as Philadelphia Energy Solutions started a fluid catalytic cracker. Gulf Coast refineries were returning after Hurricane Isaac and demand for the motor fuel declined last week. Futures sank 1.4 percent after startup of the unit, shut since Sept. 4 because of mechanical issues. The Energy Department reported that gasoline demand dropped 5.3 percent. Nine Louisiana Gulf Coast refineries were starting or operating at reduced rates as of Sept. 10 following Hurricane Isaac, which idled 13 percent of the region’s capacity.

“With refineries and cat crackers coming back online, people are getting out of the long-gasoline, short-heating oil spreads,” said Phil Flynn, Senior Market Analyst at Price Futures Group in Chicago. October-delivery reformulated gasoline, or RBOB, fell 4.19 cents to settle at $3.0016 a gallon on the New York Mercantile Exchange. Prices have risen 18 percent since sinking to a year- to-date low of $2.5501 on June 21. The Philadelphia refinery, a joint venture of Carlyle Group LP and Sunoco Inc. that can process 330,000 barrels a day of crude oil, is the largest plant near New York Harbor, the delivery point for Nymex futures. Gasoline demand fell last week to 8.7 million barrels a day, the lowest level in seven weeks.

Regular gasoline at the pump, averaged nationwide, increased 1.5 cents to $3.858 a gallon yesterday, AAA data showed. That’s the highest level since April 22. The year-to- date high is $3.936, reached on April 4. Heating oil for October delivery rose 2.95 cents, or 0.9 percent, to $3.2152 a gallon on the exchange, the highest settlement since April 3. Prices have climbed 27 percent since falling to a year-to-date low of $2.5253 on June 21. Inventories of distillates, which include heating oil and diesel, increased 1.48 million barrels to 128.6 million. Supplies are the lowest for this time of year since 2004.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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