Yesterday ended the three-day rally we saw earlier this week with WTI down $1 to $43.18, ULSD down $0.0324 at $1.2998 and gasoline as an outcast up $0.0091 to $1.5159. According to OPIS, refinery issues in the Gulf Coast region, New York and the Midwest were credited for yesterday's RBOB strength, in particular several key gasoline production units were shut down in the Gulf.
The market seems to be torn between the bearish (oversupplied fundamentals, coupled with talk of increased production by Russia and Saudi Arabia as they battle Iran for market share) and the bullish (talk of a potential production freeze in June and the end of Kuwaiti’s oil workers’ strike).
Today the market is technically driven with WTI +$1.02 to $44.20, gasoline +$0.0324 to $1.5483 and ULSD +$0.0301 to $1.3299, but does the current rally have legs? Some say yes, some say “not so fast.” Goldman Sachs has told clients that while the rally has upside potential, there still must be a shift in fundamentals for a sustainable rally to occur.
An interesting side effect of the extended slump in oil prices is Saudi Arabia’s decision to diversify its economy in order to reduce its reliance on oil revenues. According to Bloomberg, 90% of Saudi Arabia’s budget relies on the petroleum sector. Low oil prices have resulted in a $200 billion Saudi budget deficit. The kingdom recently announced plans to sell off a small percentage of its state-run oil company, Saudi Aramco, in an IPO that would create a $2 trillion wealth fund.