March Oil Products Futures Rally

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- March oil product futures traded on the New York Mercantile Exchange rallied into their expiration Monday afternoon and nearest delivered West Texas Intermediate eked out a gain in February following a nearly $1.00 bbl surge, with the advance generated despite bearish data on manufacturing in the Midwest and a decline in pending home sales in the United States.

Today's rally also followed news that the People's Bank of China eased borrowing requirements for large investors after the Shanghai Composite took a nosedive, while Saudi Arabia again lured market bulls with quintessential comments that it supports less volatility and a stable oil price yet remains committed to capturing a larger market share.

Beijing has now eased bank reserve requirements for the fifth time in a year in an effort to support growth, yet also adds to worry over too much leverage in the world's second largest economy. Consumer prices in the euro zone eased 0.2% in February, fueling speculation the European Central Bank would announce additional efforts to further stimulate the collective economy when they meet March 11.

Major U.S. equity indices were lower late afternoon while the U.S. dollar was flat after strengthening to a fresh one-month high, which typically has an inverse relationship with domestic crude prices.

NYMEX April WTI futures settled up 97cts at $33.75 bbl, and edged up 13cts on the spot continuous chart in February. April Brent crude on the IntercontinentalExchange expired 87cts higher at $35.97 bbl, and gained $1.23 during the shortest month. ICE May Brent crude settled $1.13 higher at $36.57 bbl.

NYMEX March ULSD futures expired up 2.48cts at $1.0760 gallon, enough for nearby delivery to capture a 2.09cts gain in February, with the April contract settling 2.69cts higher at $1.0937 gallon.

NYMEX March RBOB futures gained 3.31cts to a $1.0497 gallon expiration, although nearest delivery is down 5.34cts in February. NYMEX April RBOB futures settled 2.56cts higher at $1.3207 gallon, a 27.1cts premium to the now expired March contract, illustrating the seasonal shift away from the winter's bearish market fundamentals.

The primary driver for Monday's advance were technical features, with the expiration-related trade occurring amid a short-term uptrend, and following bullish bets made through Feb. 22 by speculators for WTI and RBOB futures. The market remains in position to retest technical resistance points after Friday's scrutiny.

Today's rally came despite a wide miss in business confidence expectations for February, with the Chicago purchasing manager's index tumbling 8.0 points to 47.6 versus market consensus for a 54.0 reading on a plunge in production while employment dropped to its lowest point since 2009. Nonetheless, the bearish reading was painted with a bullish brush.

"If one looks beyond the gyrations seen over the past three months then trend activity has been running a little below the 50 neutral mark, highlighting continued sluggish activity levels, with manufacturers under particular pressure. Still, given the weakness in Q4, it looks like activity should pick up during Q1," said Philip Uglow, chief economist of MNI Indicators.

MNI Indicators said in their news release announcing February readings that panelist were queried about the effect low oil prices are having on business.

"In a special question put to the panel this month, 48% said that lower oil prices were helping business, mainly due to lower freight and transportation costs. 26% of respondents said that lower oil prices were hurting business, while 26% said they had little or no impact on their business."

In January pending home sales dropped 2.5% after an 0.9% increase in December, the National Association of Realtors reported Monday, with the decline in sales the most in more than three years and contrasting with expectations for a 0.5% gain. NAR's index, which is forward looking based on contract signings, follows previously owned home sales that increased in January while newly built homes declined for the second straight month in January, muddying forward visibility for home sales. The NAR pending home sales index, which increased for 17 consecutive months through December, was up 1.4% year-on-year in January, although the smallest annual advance since September 2014.

Brian L. Milne, 1.609.371.3328, brian.milne@dtn.com, www.schneider-electric.com. © 2016 Schneider Electric. All rights reserved.

(BAS)

Brian Milne