Oil Bounces Back, But Gasoline Still Under Pressure

Oil prices have bounced back to over $100 a barrel, but gasoline is still under pressure.

Oil traders on the floor of the New York Mercantile Exchange, New York.
Oil traders on the floor of the New York Mercantile Exchange, New York.

Energy traders turned their attention from concerns about slower growth in China and slowing energy demand in the U.S. to the declining dollar Thursday afternoon.

“Once the oil market digested news of China’s latest hike in bank reserve requirements and U.S. jobless claims, the focus returned to the dollar. The falling dollar and turn around in equities helped oil prices as well,” says analyst Eugene McGillian of Tradition Energy.

But the gasoline trade remains extremely volatile. Traders are watching rising water levels on the Mississippi River for the potential impact of floods on refiners. River waters are expected to crest in the Baton Rouge-New Orleans, Louisiana area, home to 11 refineries, on May 23.

Yet, for now, traders are selling gasoline futures. After an 8 percent rise to nearly $3.40 a gallon earlier this week, June RBOB futures have given up all of those gains and more. The front-month RBOB gasoline contract settled at $3.06 a gallon Thursday, down nearly 2 percent in the session.

Meanwhile the June RBOB gasoline crack spread—the difference in price between gasoline and crude oil that reflects refiners margins—slid another 10 percent to under $30 a barrel. The front-month gasoline crack hit a record $40 earlier this week.

The CME Group’s hike in margin requirements goes into effect at close of Globex electronic trading session at 5:15pm Thursday. Margin requirements on gasoline futures will rise 21 percent and will spike 50 percent for gasoline cracks.

Some say higher margins may have had an unintended consequences.

“When the CME takes the margins up, some traders get out of their long positions in energy or metals, then prices come down so far, so they get back in,” broker Chris Motroni of Heritage Energy. “No one is saying commodities won’t go back up longer term.”