04-21-2019: June Gasoline: Demand Unexpectedly Higher-Than-Projected

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

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4     5

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Introduction

6 It is said gasoline is one commodity the average public can know what is happening by their trips to the pump. That may not be strictly true. Californians are really getting gouged on gasoline prices by their state's unwise business-unfriendly and wasteful political tax system, particularly in the case of its repressive gasoline tax. So they will conclude gasoline wholesale commodity prices must be rising out of sight. But their state is experiencing peculiar refinery, storage, transportation and outsourcing problems not experienced so much by the rest of the country. They may see record highs while the rest of the country sees historical prices allowing for a ways to go before gasolien prices hit anything like a "record." Gasoline price situation favors some relief for Californians, but for the rest of the nation there appears to be a steady trend upward. Still, our technical indicators suggest the projection of the future direction is relatively a "tie" so we had to double-weight the news to break the tie. Even the news is more apt to reflect what is happening in California than in the rest of the nation. Overall, we think gasoline prices will play "catch up" to California and are less likely to see relief in the rest of the nation as we enter the driving season. News suggests nationwide demand is higher than gasoline makers anticipated.


Intermarket Analysis

We fed Gasolline, Heating Oil, and Crude Oil into a neural network to get the following result:




Parabolic Chart

June Gasoline:

Parabolic Chart


Nirvana Chart

June Gasoline::

Initial Chart


News Analysis

Gasoline wholesale price continues to hover above the $2.00/gallon level. A two-month pattern of declining U.S. gasoline stocks might end after an increase in U.S. refinery activity last week. While the refinery operating rate increased last week, it still reamins 5% below year ago levels, and therefore building gasoline stocks into the summer driving season will probably remain behind seasonal patterns. Analysts are expecting gasoline stocks to decline by more tan 2 million barrels which would be the ninth straight week of declining supply. However, a recent weeklyi AMerican Petroleum Institute survey showed a modest increase in U.S. distillate stocks that was in cointrast to trade forecasts for a modest weekly decline. Into the middle of April, U.S. gasoline stocks are running at nearly 10 million barrels below year ago levels indicating strong demand. An imlplied gasline weekly demand reading of 9.8 million barrels is a very high number.

Product fundamentals often correlate with crude oil prices. There is evidence of rising Chinese oil demand, a surprise decline in API crude oil stocks, definite improvement in global macro-economic conditions, and news of declining exports from Angola. However, Chinese refinery actdivity slowed in March. Iranian oil exports in early April are at the lowest levels of the year. However, an Iranian oil supplyi threat might not provide further support unless the U.S. gets tougher on the number of sanctdion exemptions. Grains are showing some strength as the decline in API crude oil stocks led to thoughts of more use there for ethanol.

Gasoline prices throughout much of California are soaring to well above $4.10/gallon. That includes a huge gas tax there of $1.26/gallon. Other cost factors include a switch to summer blend. California requires more imports of gasoline raising storage and transportation costs. Port and storage space for gasoline in California has become hard and costly to come by. Price hikes really started last month when refineries had schedule maintenance and switched their winter blend of gasoline to California's specially formulated summer blend, which is enironmentally more stringent and designed to reduce greenhouse gas emissions. Valero Energy Corp.'s refinery in the San Francisco area stopped processing oil after a week of smoky emissions prompted air quality warnings. Phillips 66 refinery at Los Angeles had a fire, and Chevron's El Segundo plant had technical issues. Refinery issues tend to be short-lived and the Automobile Club predicts relief will come soon. Four Union Oil 76 stations in Pasadena, Santa Monica, Los Angeles, and Beverly Hills were selling regular gasoline for a whopping $4.89/gallon recently. Sam;'s Club in Ontario was selling regular for $3.64/gallon and Costco in Irvine at $3.75/gallon.

Gasoline prices may start rising further following crude oil's recent record-breaking run. "Oil Price Information Service" estimates that from now on, every $1/barrel increase in crude oil price will translate to a 2-1/2 cent increase in gasoline price.

Climate change fears of more severe weather in the Gulf of Mexico affect predictdions for possible outages there. The Federal Reserve's determination not to raise interest rates further and patterns of the U.S. Dollar exchange rate could both increase demand for gasoline and increase prices further. If the Fed decides to end the curerent tightening cycle and actually cut rates as pressured to do by an Administratioin trying to push equity prices even higher, that would go a long way to raise gasoline prices much higher.

There is continuing pressure from the U.S. Government to boost ethanol content in gasoline to 15% which would cause vehicles made before 2001 to suffer fuel system or engine damage. Another recent factor affecting gasoline prices is Venezuela's economic collapse. The world's most oil-abundant natioin is heading for energy consumption levels there not seen since the 1990's.

The Trump Administration has been threatening to sell oil from the Strategic Petroleum Reserve for political purposes to help push the economy.

OPEC supply cuts and U.S. sanctions on Iran and Venezuela are leaving the market withi less cushion to absorb oil supply disruptions. Oil demand is holdilng up better than suggested by a series of gloomy forecasts last fall, pushing up the cost of crude and surprising analysts. U.S. West Tecas Intermediate crude oil prices have rallied 40% this year pushing past $63/barrel while Brent crude, the international benchmark for oil prices breached $70/barrel for the first time since November.

The U.S. has suffered midwestern floods, unplanned outages, transit dirsuptions, refinery fires and a blaze at a Texas petrochemicals storage facility dirupting the Houston ship channel. International sanctions have disrupted the ability for the U.S. to absorb internal supply disruptions from outside sources.

The Trump Adinistration continues to cloud the picture with threats of supply disruptions by stripping China, India, and other oil importer nations of sanction waivers. The actual probabilityy of such cancellations is held at around 15% only.

Some are saying normal seasonal demand will start driving gasoline prices higher, not lower, from where they are now even with refinery usage improvements.

Chevron and Anadarko Oil merger this year and possibly other mergers will decrease competition and support prices. Apache, Parsley Energy, PIoneer Resources, Occidental, Concho Resources are all other oil exploration companies that may be involved in mergers or acquisitions soon.

280,000 protesters took to the streets of Paris in violent opposition to President Macron's hike in a gasoline tax in France. Gasoline there is less expensive than in thie United Kingdom, but the tax in France recently increased by 30 cents more per gallon, with current price well ove $7 (U.S.). France suspended that increase temporarily after violent protests. Logically one can sense the frustration in France when it costrs $140 to fill up a 20-gallon tank. Gas taxes affect everyone, regardless of their financial ability to pay, making it a "repressive" tax.

In the U.S., President's handing out of billions of dollars in gas tax money to states went into projects that eventually failed. One example is converting six-lane boulevards to four-lanes to incorporate new bike paths (in order to gain Federal money for states), which caused gridlock and much wasted fuel from idling cars. Many local bicyclists continue illegally to use pedestrian sidewalks as much safer for the bicyclists if not the pedestrians, and there just aren't that many of them to justify all the added expense and frustration for motorists. .


Point & Figure Chart

258.0|                                                                  T  4/17
     | NYM - Jun-19 Gasoline, Reform'd 420gal c/g  Cm.=0.01  Lim.= 0.5
     |
     |
     |
238.0|_________________________________________________________________________
     |                               X
     |                         X     XO
     |                         XO    XO
     |                         XO    XO
218.0|_________________________XOX_X_XO________________________________________
     |                         XOXOXOXO
     |                         XOXOXOXO
     |                   X     XO O O O
     |                   X X   X      O
198.0|___________________X_X___X______OX_______________________________________
     | X                 X X X X      OX
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     | XO                XO  X        OX
     |O O                X  O         OX
178.0|__O________________X____________OX_______________________________________
     |  O              X X    O       OX
     |  O              XOX            OX
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158.0|__O______________XO_____________OX_______________________________________
     |  OX X           X              OX
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 98.0|_________________________________________________________________________
     |
     |
     |
     |
 78.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
           1111   11     1            1
      6678911122781115679022222266778801
      0102101202011332121200001102121310
      4068432476581006561567892549676004
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Project". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Project" for Gasoline (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $420. Initial margin on a single contract is $4,620. Use of options is advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Gasoline June 196 Put and Sell (1) Gasoline June 198 Put @ .0145 to the sell side or greater.


o 1 o 2 o 5


Calendar Spread

What the Jun. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at 17.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 28.00 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be at the sell the near, buy the far point.





Level Table:

Level Table

The path of least resistance is up.
245.0|                                                                  T  4/17
 NYM - Jun-19 Gasoline, Reform'd 420gal c/g  Cm.=0.01  Lim.= 0.5
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135.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.250
                               1 1 1 1 1 1                            
       4 5 5 6 6 7 7 7 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4           4
       2 0 1 0 1 0 1 3 1 2 1 2 1 2 0 2 0 2 0 2 0 1 0 1 0 1           1
       3 4 8 4 8 2 7 1 4 8 2 6 0 4 7 1 6 0 7 1 4 9 5 9 2 6           7


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 4/18 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                   RBM9    June Gasoline

                      High Price:  2.170
                   Current Price:  2.033
                       Low Price:  1.965

                            Risk:  0.066
                     Opportunity:  0.133

                    (O/R) Ratio =  2.015


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 2
Point & Figure - 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 1
Place 3 June Gasoline on a Buy Watch with stoploss @ -7.42 below the get-in point when recent price is represented as "201.10".
____________________________________________________________________________________________________________________________________________R.S.