Is Oil in a Bull or Bear Market Now?

By Brian L. Milne, Refined Fuels Editor, Telvent DTN

After seven consecutive weeks moving higher, we should see a decline in the U.S. average price for gasoline following a $16.75 barrel tumble by crude prices in futures trading on the New York Mercantile Exchange during the first week of May, which pressed the U.S. benchmark crude price below $100 barrel. During the same timeframe, gasoline (RBOB) futures slid 37.47 cents gallon or $15.74 barrel.

The oil futures market is again rallying early Monday (5/9) on a sentiment that the May 5-6 price plunge was overdone to the downside, with a few trade sources even citing panic selling during the selloff. There is a sentiment gaining currency that underlying support for high oil prices hasn’t dissipated, with the price plunge alleviating an overbought market condition.

In short, the debate now is whether the early May selloff in NYMEX oil futures was what is referred to as a downside correction in a bull market, which would mean resumption in the march higher by oil prices in the short term, or the start of a bear market with prices moving lower. Those thinking oil has moved into a bear market note that snapback rallies after major selloffs are common.

Overall, wholesale gasoline costs during the first week of May erased the increase seen during the last week of April. That should place the U.S. average price for retail gasoline below $4 gallon when the Energy Information Administration (EIA) reports their survey results for May 9. Through May 2, the retail average surged 8.4 cents to $3.963 gallon, the highest point reached by the average since July 21, 2008 when it was $4.064 gallon.

We could still see the average hit $4 gallon, which is where the Lundberg Survey said it was on May 8 after increasing 12 cents from April 22. It’s worth noting too, that in early May 9 futures trading gasoline (RBOB) is up more than 15 cents gallon, narrowing considerably May’s first week losses.

View Telvent DTN’s Weekly and Historical Gasoline Price Index.

Regional Divide
We’re likely to see an uneven reaction in retail gasoline prices based on regional issues, too, which are frequently pushed into the background amid an overriding futures market. While the sharp gains are driving gasoline prices higher across the country in early May 9 spot trading, gasoline prices in California are seeing a smaller increase as refiners cut asking prices to move out product.

In the Chicago market however, a pair of refineries have run into operational issues, spiking prices 30 cents gallon in some cases. Moreover, potential flooding along the Mississippi River later this month could curtail operations at as many as eight refineries while hampering gasoline barge deliveries along the waterway, which would have the greatest impact on local markets in this part of the country.

The bottom line might turn out to be that despite the dramatic May 5-6 selloff, US benchmark oil prices hold near $100 barrel which will limit the decline in retail prices, while regional operational issues could keep some pump prices on the upswing despite an easing in the national average.

About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for 15 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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