Gasoline higher but lack of follow-through may dampen prices

Top of the Tank

RBOB gasoline futures exploded but it is possible that we could be seeing a blow-off top. A silly surge on talk of refining issues and talk of tight gasoline blending components sent prices flying. Yet the lack of follow through with the crude oil and heating oil may mean that this historic run on gas may soon be coming to an end.

We should also see more oil become available soon. Robert Campbell of Reuter’s news wrote that “Shippers who want to use capacity on the Seaway oil pipeline to move oil from Cushing, Oklahoma, to the U.S. Gulf Coast must now apply for capacity by the 15th of the month, the pipeline said in a regulatory filing. The filing, dated Feb. 12, said the decision to move up the deadline for monthly capacity nominations was due to the high number of shippers seeking space on the line. Pipeline capacity nominations in the United States are traditionally due by the 25th of the month.”

In other words there is going to be a lot of oil. Of course Barbara Powekll of Bloomberg says that some of those lower grades of oil are not exactly conducive to high quality gasoline blending components which is on reason traders are playing the spreads. Ms. Powell said that The March RBOB contract discount to April futures narrowed for the first time in four days. The March-delivery gasoline gained 2%. The March-April spread shrank 2.44 cents to 21.2 cents, after reaching the widest in seven years yesterday for the contracts nearest to expiration on speculation winter-grade supply is ample. April futures represent summer-grade fuel, which costs more to refine and blend. East Coast supplies rose last week while total U.S. inventories fell, Energy Information Administration data show. 

Oil seemed to only get a slight bounce and the Brent/WTI spread by the fact that UN officials said they didn’t secure an agreement that would allow access to alleged atomic facilities and couldn’t settle on a date for another meeting, signals that sanctions on the country’s oil exports may remain. “We will work hard now to try and resolve the remaining differences, but time is needed to reflect on a way forward,”

The front end of the natural gas curve continues to get crushed yet the long end is staying strong. In the short end the number came in closer to my expectations as working gas in storage was 2,527 Bcf as of Friday, February 8, 2013, according to EIA estimates. This represents a net decline of 157 Bcf from the previous week. Stocks were 270 Bcf less than last year at this time and 348 Bcf above the five-year average of 2,179 Bcf. In the East Region, stocks were 94 Bcf above the five-year average following net withdrawals of 116 Bcf. Stocks in the Producing Region were 185 Bcf above the five-year average of 775 Bcf after a net withdrawal of 33 Bcf. Stocks in the West Region were 69 Bcf above the five-year average after a net drawdown of 8 Bcf. At 2,527 Bcf, total working gas is within the five-year historical range.

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