The Henwood Edge

 

BYE, BYE SEASONALITY

“In the Gasoline market, we are NOT going to see a return to seasonality”, says Abudi Zein of Genscape.

Seasonality is the tendency of the Gasoline market to have high price peaks and low price troughs throughout the course of the year.  This year the post-holiday dip in prices will be slight, if it even appears at all.  Typically, we see prices peak prior to Memorial Day, heralding the arrival of the high demand summer driving season and a much smaller peak as we approach the year-end holiday season.  All those trips to Grandma’s house means greater Gas demand and higher prices.

I spoke with Abudi about the recent developments in the Gasoline market today and there are some very interesting factors keeping prices high and moving even higher.  Several weeks ago, the U.S. became a net exporter of refined products for the first time.  The destination of these products? … mostly Central and South American countries.  As those economies continue to emerge and grow, their appetite for petroleum products, especially refined Gasoline is ever increasing.  According to Zein, “we are not going to wean US refineries from the LATAM markets and their profit margins anytime soon.”  Keep in mind that while it is winter here in the northern hemisphere; it is summer in the southern hemisphere so it’s the middle of their higher demand season.  This increase in demand allows US refiners to keep cranking out the Gas to a very thirsty, growing market.

Also consider that two major refineries in the northeast have already closed their doors with the potential of several more to follow.  This loss of capacity and the decreased production of Gas coming out of Europe, will tighten our supplies of Gasoline here in the US and keep prices higher than most average consumers would like for the foreseeable future.

Source: Thomson Reuters EIKON

So what does this all mean?  For the Gasoline trader, it means buying the market on any dips.  Since the summer peak, $2.4771 has provided a firm floor. (1) If prices get this low again, (and I doubt they will) it will be a great opportunity to get long.  More realistically, there may be a chance to get long at the 100-Day Moving Average (2).  In either case the way to trade this market is to BUY DIPS.  To the upside I expect there will be some resistance at the 200 Day MA (3) (currently at $2.8753).  Above that the next level of resistance comes in at $3.0500. (4)

There is going to be a definite bullish bias in Gasoline for the foreseeable future.  There is an emerging demand for US refined products from our southern neighbors and a decreasing refining capacity in the northeastern states.  Throw in decreased Gasoline production out of Europe and you have a perfect recipe for rising Gasoline prices.  For the non-trading average consumer, there’s not much choice … you have to pay what they charge at the pump.  But for the Gasoline trader, buying while the buying is good, can put a nice chunk of change in your pocket.