Today, April becomes the front-month contract for refined product futures (RBOB and ULSD), triggering physical spot product to trade at a premium last night. April’s RBOB now reflects summer-grade gas, which includes a low RVP requirement. Because this specification is more expensive to produce, April RBOB futures gained over 27 cents per gallon compared to the expiring March contract. April ULSD also gained about $0.0175/gal in the roll.
Despite sentiment that an agreement for a production freeze could be near and a reported decline in U.S. output, prices were trading at a gain again this morning; however, they have since rebalanced. Yesterday, WTI crude rose 36 cents to $34.11, HO finished up $0.0425 to $1.0937, and RBOB gained $0.3041/gal to $1.3207. HO is currently flat, while RBOB is trading down about $0.0306/gal.
Despite the advances we’ve seen over the past couple of weeks, it is still likely that prices could fall back to January levels. Outlook is quite bearish for the first half of 2016, with global stocks adding an average of 1.32 mbpd and OPEC output of 33 mbpd. Even if we were to see supply and demand balances sooner than expected, there is still the colossal stock overhang to tackle. The only hope for tighter fundamentals at this point is if OPEC and non-OPEC producers are able to cooperate to construct believable, substantial output cuts.