RJO FuturesCast

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Energies

Crude and Crack Spread Looking to Recover

Posted 07/19/2018 3:06PM CT | Michael O'Donnell

As of Thursday afternoon, the August crude oil contract is stronger following a nearly $8.24 decline from the high made on July 3.  On July 5, my article noted the potential for the market to reverse following the bearish reaction to a large draw in inventory.  Yesterday’s EIA had a build in inventories and while that is fundamentally bearish, prices have recovered after testing lows around $67 the last couple of days.

While the market has held $67.50 recently it has also not held $70 today and the market is weighing a number of factors, such as:

  • United States production at 11 million barrels per day at the highest level it has been
  • OPEC quota compliance dropping, another sign of more production
  • Refinery capacity rates which are still high while easing somewhat this week
  • Supply and demand concerns from a number of geopolitical participants

Should $70 continue to act as resistance, it is possible the technical action from today and yesterday is a short squeeze prior to re-testing the $67.50 level.

This could be the case considering a number of spread markets covered on our desk, including but not limited to calendar spreads in WTI crude, WTI Brent and the crack spread between WTI crude and RBOB gasoline pictured below.

Looking at the October spread and the continuation chart below, it is clear the relationship has held above recent lows ahead of a potential busy driving and hurricane season.

RBOB vs WTI Crude Oil Crack Oct ’18 Daily Chart

RBOB vs WTI Crude Oil Crack Oct '18 Daily Chart

 

RBOB vs WTI Crude Oil Crack Daily Chart

RBOB vs WTI Crude Oil Crack Daily Chart

Michael O'Donnell

Mike started his career in the markets on the floor of the Chicago Board of Trade as a trade checker for a local market maker in the Dow Futures pit. This led to interning with an independent introducing broker and going on to work with a number of market participants including: speculating clients, hedge clients, introducing brokers, futures commission merchants, commodity trading advisors, proprietary traders, trading educators, system creators, and a number of international financial market participants.