Looking to the Futures
Gasoline Futures Dropped 18 Cents on Wednesday. Or Did They?
On Wednesday afternoon, the last trade on the continuous gasoline futures chart (/RB) was at $2.1428. An hour later, gasoline futures opened at $1.9648 for Thursday’s trading. An 18-cent drop in gasoline would save millions of travelers a pretty penny over Labor Day Weekend. Don’t splurge on pork rinds and energy drinks just yet though. The active futures contract switched from September delivery (/RBU25) to October delivery (/RBV25), and gasoline futures quotes drop significantly on that contract roll every year.
The change in prices follows the change in seasons. As summer comes to an end, refiners can stop producing the more expensive, more energy dense summer blend and move to producing the winter blend. Summer-blend gasoline is required to have a lower Reid Vapor Pressure (RVP), a measure of (chemical, not price) volatility which describes how easily the fuel evaporates. Winter gasoline can have a higher RVP of up to 15.0 versus the summer blend with a maximum of 9.0. That means winter gasoline evaporates more easily. The pollution effects of higher RVP are offset by colder temperatures, plus the higher rate of evaporation allows cars to start more easily in frigid temperatures. Refiners take advantage of the higher RVP level (and help those of us north of the Sun Belt start our cars) by adding more butane to the mix. Butane is a cheaper, lighter hydrocarbon with an RVP of 52 derived from crude oil and natural gas, and the proportion of butane can be increased from around 2% for summer blend to 10% for winter blend.
With the chemistry lesson out of the way we can look at market dynamics. The Energy Information Administration’s Weekly Petroleum Status Report said crude inventories dropped by 2.4 million barrels last week to 418.3 million barrels, 6% below the five-year average. Total gasoline inventories decreased by 1.2 million barrels to 222.3 million barrels, in line with the five-year average. Refinery utilization and gasoline production were little changed, while the average retail price of gasoline increased slightly from $3.125 to $3.147.
In the Midwest, the change in gas prices was stark, rising around 25 cents a gallon. That was largely due to an outage in BP’s Whiting, Indiana refinery due to flooding following thunderstorms last week. BP announced that production was back to normal on Wednesday. The Whiting refinery is the largest in the region, with production capacity of around 440,000 barrels per day.
Internationally, gasoline prices were supported by supply disruptions in Russia following drone attacks from Ukraine focusing on Russia’s energy sector. The strikes reduced refinery output by up to 250,000 barrels per day. Overall, the strikes have affected refineries providing up to 17% of Russian refining capacity. In response to that, plus higher prices as the end of summer travel season coincides with the start of harvest season, Russia extended its ban on refined gasoline exports from September 30 to October 31. While gasoline exports are outlawed, the country still exports crude oil to Eastern Europe, and the Druzhba oil pipeline to Hungary and Slovakia resumed operations yesterday following a week of repairs following earlier Ukrainian attacks.
The oil cartel OPEC+ will meet in early September with an announcement coming Sunday September 7. At the prior meeting August 3, the group agreed to increase production by 547,000 barrels per day in September. It will be the second consecutive increase following OPEC’s July meeting where production targets were raised by 548,000 barrels per day in August. The elephant in the OPEC+ room is Saudi Arabia, and the kingdom’s majority-state-owned Saudi Aramco is expected to set its October Official Selling Price just ahead of the meeting. Refiners surveyed by Reuters expect the price to be lowered by 55 to 60 cents per barrel versus the prior month.
Technicals
The chart displays the October contract (/RBV25) for the year instead of the continuous contract (/RB) given the abrupt change discussed above. Following heightened volatility from April through June, the trading range has narrowed. The RSI and MACD confirm the decrease in volatility, with the RSI avoiding overbought and oversold levels for the past two months and the MACD range similarly narrowing. The contract traded through the 9-, 20- and 50-day SMAs during Thursday’s trading. A head-and-shoulders pattern may have started at the beginning of June.
Contract Specifications
Major economic reports, trading events, and news items that could potentially impact specific futures markets:
Adv. Intl. Trade in Goods 8:30 AM ET
Adv. Retail Inventories 8:30 AM ET
Adv. Wholesale Inventories 8:30 AM ET
Chicago PMI 9:45 AM ET
PCE Prices 8:30 AM ET
New Products
New futures products are available to trade with a futures-approved account on all thinkorswim platforms:
- Ripple (/XRP)
- Micro Ripple (/MXP)
- Micro Corn (/MZC)
- Micro Wheat (/MZW)
- Micro Soybean (/MZS)
- Micro Soybean Oil Futures (/MZL)
- Micro Soybean Meal Futures (/MZM)
- 1 OZ Gold (/1OZ)
- Solana (/SOL)
- Micro Solana (/MSL)
Visit the Schwab.com Futures Markets page to explore the wide variety of futures contracts available for trading through Charles Schwab Futures and Forex LLC.