WTI crude prices have taken a tumble this week and expectations are for the winter driving season to give motorists a break on the price of gasoline. A number of factors are conspiring to limit the upside for WTI right now.
The first is a retracement of the fear premium injected into WTI pricing by the Syrian situation. As tensions there and in other parts of North Africa and the Middle East cool, WTI eases lower. This may have taken as much as $15/barrel out of the WTI price. At the open, the Brent crude WTI spread was at $11.78, its widest point in several weeks.
Supply data took the U.S. crude market by surprise this week adding nearly twice as many barrels to inventory than was expected. Distillate also grew even as refinery runs pulled back a few percentage points signaling the savings may extend beyond retail gasoline to #2 heating oil and farm diesel. Stocks of ethanol continue to build as well amid lagging cash corn prices, and the discount ethanol holds to regular unleaded entices consumption.
Meanwhile, U.S. gasoline inventories fell slightly over the last week, but the total supply remains well above year-ago suggesting holiday travelers will enjoy less expensive gasoline nationwide. Some have predicted gasoline prices with a two dollar handle by the first of the year, and most believe January 1 could mark retail gasoline prices in the $2.95-$3.20 range nationally.
If we have learned anything about WTI crude in the past six months it is that American crude oil still has it in itself to surprise investors and refiners. On a day when the sun is shining, that comes as good news -- more declines might be right around the corner. But uncertainty does not always reward optimism, and a renewed appreciation for WTI's chart mobility must include the possibility of an upside swing.
Having said that, easing tensions in North Africa and the Middle East, a surprising storage build and weak demand from consumers should limit the upside for holiday gasoline. Just remember, the increases of the last few months came unexpectedly and shriveled the WTI/Brent crude spread to nothing, and it can happen again.
For now, the sun is shining on WTI from the consumer perspective, lowering gasoline, home heat and diesel prices, and that sunshine is expected to last well into 2014.
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