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Refined Products

Recap: Oil markets settled higher yesterday as NYMEX RBOB (Gasoline) gained the most percentage wise, but NYMEX (WTI) Crude seemed well supported throughout yesterday's trading. RBOB settled up 3.11 cents to $2.8914, passing two resistance points,  and hit an intraday high of $2.9014. NYMEX ULSD (HO) bears seemed to working hard to keep ULSD from breaching resistance just above the $2.86 level, and barely managed to settle just under $2.86 at $2.8588, up 1.36 cents. August WTI closed up $1.46 to $104.59 widening the backwardation to the incoming September contract to $1.73. With the September WTI futures contract closing up 91 cents to $102.86 ($1.73 lower than August) and the August WTI contract expiring today, it will be interesting to see if the August settles at an even higher premium to September than we are currently seeing.  September ICE Brent Crude was the lone Brent contract in the negative in early trading, but reversed up to close at $107.68, up 44 cents. The weakness in Brent relative to WTI is "reflecting an ongoing complacency regarding the potential for violence in Ukraine, Iraq, or Libya to lead to a material loss in crude oil supplies." (CitiFutures, 7-21-14) The September version of the Brent-WTI (using the September contracts) was down below $5.00 to $4.82 (see chart below). It seemed that much of the trading today was related to the Brent-WTI spread as the NYMEX (WTI) continues to ratchet up closer to the ICE Brent global benchmark. 

Currently, oil markets are up across the board, likely prompted by anticipation of large commercial crude stock declines due to strong refinery runs upon the release of the EIA's weekly DOE Inventory Report tomorrow morning at 10:30am. Although crude declines are seasonal and estimations are coming in the 2 to 3 MMbs draw range (5-year average is 1.8 MMbs), the potential of Cushing, OK crude stocks to fall below 20 Million barrels, continues to support NYMEX Crude. Additionally, the expiration of the August WTI contract today has provided additional volatility. NYMEX ULSD (HO) is up 1.28 cents to $2.8716 (drats ... we have already breached both $2.86 and $2.87 and hit an overnight high of $2.8776), and NYMEX RBOB is up again strong, following through from yesterday, up 2.41 cents to $2.9161. August NYMEX Crude is up 25 cents to $104.84, September NYMEX Crude up 19 cents to $103.05, and that puts the backwardation to $1.79, higher than yesterday's closing backwardation. ICE Brent Crude is finding more price strength than WTI at the moment, up 47 cents to $108.15. 

Is this the start of WTI's rise to replace Brent as the international benchmark? Many analysts think not, at least, not quite yet. From Reuters yesterday "The world market for cash crude is turning upside down, with a key U.S. benchmark for immediate-delivery oil nearing a premium to the global equivalent for the first time since the shale revolution began four years ago. In the United States, a market mostly unable to export a growing glut of excess shale oil, refiners are bidding furiously for crude in the opaque physical market, paying the highest premiums in months for coastal grades like Light Louisiana Sweet WTC-LLS and Mars WTC-MRS. In Europe, anxiety over the possibility of future geopolitical disruptions is clashing with fundamental realities of the day, including rising supply from Libya and thinning refinery profit margins that are limiting on crude oil demand. The situation is almost certain to be temporary. As oil flows rebalance and refiners adjust purchase plans, Brent is likely to retake the upper hand."  If Brent crude is to widen its premium to WTI crude, this will be a driver that will increase the Brent-WTI spread, and the higher this spread gets, the more incentive there is for U.S. refiners to continue exporting refined products abroad, and that fact impacts domestic refined product prices, particularly on the East Coast.

Click here to view today's Refined Products MarketWatch.
Natural Gas

The August NYMEX Natural Gas Futures Contract opened at $3.869 on Monday – more than eight cents lower than Friday’s closing price due to weekend weather forecasts that indicated an extension of below-average temperatures for the eastern half of the country.  Buyers took advantage of this price during the early minutes of trading and by 9:25AM, prices hit $3.892 – the intraday high.  Prices began falling soon after and by Noon August was trading at $3.835.  The noontime weather forecasts were not supportive and at 12:30PM, Natural Gas had fallen to $3.827.  This was the intraday low as traders looked to buy gas at prices that have not been this low since November of last year.  At 2:15PM prices were at the $3.85 level and Monday closed at $3.849.  This morning in Globex, WTI Crude is up 33 cents, Natural Gas is flat, Heating Oil is up two cents, and Gasoline is up two cents also.

Both New England and New York cash prices were up.

Natural Gas Glossary

For access to Sprague’s full Natural Gas Market Watch Report including commentary not posted here, please send your request to or call 1-855-466-2842.