The futures market is trading up a bit this morning after yesterday’s rally. Yesterday, November futures contracts for WTI closed at $46.26 per barrel, marking the highest prices have been in two weeks. November NYMEX RBOB futures closed yesterday at $1.3853/gallon and November NYMEX HO contracts closed at $1.5483/gallon, both are up about 3 cents per gallon from last week and are on the high end of recent ranges.
There are a few global story lines impacting the markets this week, including the ongoing conflict in Syria and Russia’s stated willingness to discuss the global fuel supply with other major global producers. There is fear that Russia and OPEC might act together to control global production and pricing, however there are several opposing views that suggest the Saudis want to control market share by cutting prices.
Traditionally gasoline trades at a premium to diesel. Between 1997 and 2004 this premium was about 7 cents per gallon on an annual basis. Since 2007 we have seen a reversal of this trend and NYMEX HO has been trading over the NYMEX RBOB contract. The reason for this is a shift in demand for diesel. In 1998 the demand for diesel was about 18% and has climbed to 21%. This demand growth has been triggered by low oil prices resulting in increased SUV purchases within the United States. The current premium of diesel over gasoline has averaged 9 cents per gallon. In 2015 this spread will be at a five year low, raising the question of whether or not this trend will continue into 2016.