Gasoline Futures Surge, Backwardation Returns, Debt Debate Drags On

RBOB gasoline futures have surged 15 cents to start the week, reaching a new 5-week high this morning. So far, ULSD and Crude prices are reluctant followers of the big rally in gasoline prices, which suggests the pre-Memorial Day demand spike could be at play as suppliers rush to fill tanks this week ahead of the kick-off for driving season.

Backwardation is back: For gasoline at least, which has seen premiums for prompt barrels vs forward prices rally to a 6-month high. Crack spreads and premiums for space to ship along Colonial’s main gasoline line have been rallying in concert with the rally in RBOB values, as traders behave as though there may be some short-term supply squeeze, even though there have not been any new reports of refinery upsets that would typically accompany this type of move. 

Not buying it? While futures are pushing higher, prompt basis values in most US cash markets are adjusting lower, with cash prices up only 2-3 cents yesterday vs 7 for June futures, suggesting that the big physical players outside of the East Coast aren’t facing a supply crunch. The Gulf Coast has already rolled to June delivery cycles trading vs the July futures contract, so the most liquid contract in the country isn’t paying attention to the big jump in June futures anymore.

The debt debate was the big story out of Washington until a fake photo of an “explosion at the Pentagon” temporarily took some traders and their algorithms for a ride Monday morning.  So far there’s nothing new to report in the negotiations to raise the debt ceiling with just 1 week until the Treasury’s sort of deadline.

A warm winter spared the Western hemisphere from much-feared fuel supply shocks, but a sudden heat wave is having the opposite effect on Asian markets. An El Nino pattern is expected to form this year, which has many different potential impacts – including a smaller number of Atlantic hurricanes, and more in the Pacific forecast.

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