The market continues to be very vulnerable and will be the case for the next few days as more concrete information comes from the turmoil in the E.U. As we all know, the U.K. voted to leave the E.U. last Friday, which caused WTI crude to undergo its largest single day decline since October. Crude settled down $2.47 to $47.64, RBOB and HO fell $0.0785 and $0.0653 respectively, and for statistical news, LA’s spot market CARBOB dropped a staggering 13cts/gallon on the day. Both the Chicago Cash Market and New York Harbor for gasoline followed closely with the NYMEX and even after significant declines on the day, closed the week with gains. Additionally, July RBOB on the NYMEX, even with Friday’s steep decline, settled for the week up almost two cents.
A domino effect is in full force. Since the U.K’s (unexpected) referendum on independence from the E.U. occurred, the expected has happened. The British Pound has taken a significant hit as investors inevitably have lost some short-term faith in the Eurozone. The Pound vs. USD is at its weakest since 1985. With the Pound plunging, the USD index has strengthened and is up around 96.47 as I write this. Most impactful to us has been the weakness in the crude market, and that trend has continued this morning. Crude is down $1.39, RBOB is down $0.0460 and HO is down $0.0332. Additionally, an interesting article published on Bloomberg.com Sunday night, discussed the Norwegian Krone, which is active against the USD, has taken a hit and will continue to follow in conjunction with oil prices.
How serious is this? Will the market correct itself? Two weeks from now will this be an afterthought or will we be in the wake of what PVM is calling a “Czechout”, a “Portugone” or even a “Donemark?”
The key fundamental to watch this week is going to be supply levels. With the disorder in the E.U., it is assumed that demand for oil will see a decline. If supply levels and production output increase this week, crude will most likely continue this downward trend. How low will it go? I don’t believe $26/bbl is in our future, but with Nigerian oil rebounding after rebel attacks, and Canadian wildfires a thing of the past, low $40’s or high $30’s are both plausible.
Locally, gasoline prices in Southwestern PA have fallen one cent on average each week for three weeks now with last week’s decline a result of global factors. However, as we approach one of the busiest driving weekends of the year, there is always potential for a rise at the pumps.