Gasoline Futures’ Index Spikes in Opening 2012 Trade

Although wholesale gasoline costs were mixed during the final week of 2011, retail gasoline prices are poised to move higher in early January, with futures prices spiking to a nearly two-month high during the first trading day of 2012.

Reformulated blendstock for oxygenate blending or RBOB futures trading on the New York Mercantile Exchange is surging in early trading Jan. 3, with the crude futures contract jumping above $102 barrel to a 1-1/2 month high on its spot continuation chart. RBOB, which is the reformulated gasoline blendstock that needs ethanol to make it a finished gasoline, is the futures benchmark that physical gasoline traded in spot markets across the country is indexed against.

Oil markets are rallying to start off the new year on a combination of factors, including bellicose comments from OPEC member Iran, which has threatened to cut off the Strait of Hormuz in retaliation for a proposed ban on its oil in Europe and the United States. Led by France, Europe is set to enact the ban over Tehran’s push for nuclear weapons. The U.S. said it will join Europe’s ban, and has called on Japan to also embargo Iranian oil imports.

The Hormuz Strait is the world’s most important global chokepoint for oil deliveries, according to the Energy Information Administration (EIA), with an average 17 million barrels per day of oil in 2011 traversing the waterway that connects the Persian Gulf with the Gulf of Oman. Oil produced by Saudi Arabia, Iraq and Iran move through the waterway. At its narrowest point the strait is 21 miles wide, but can still handle the world’s largest crude carriers.

The U.S. has warned Iran that it would not tolerate any disruption of oil shipments through Hormuz. The U.S. Navy’s Fifth Fleet is stationed in the Persian Gulf at Bahrain.

Iran’s navy concluded 10 days of military exercises in the strait, which began the day before Christmas.

Add to the worry of an oil supply disruption optimism for the U.S. and Chinese economies and the oil market was in rally mode.

Traders are increasingly optimistic the U.S. economy will expand in 2012, which would increase demand for oil and its byproducts. Meanwhile, data from China showed its manufacturing sector surged in December from November, quieting talk that the Chinese economy was headed for a hard landing.

Oil prices came under pressure in December as market players thought Chinese economic growth was poised to slow after years of double digit growth, with China the world’s second largest consumer of oil after the U.S. The market believed that the euro zone’s economic troubles were negatively impacting Chinese exports, a key growth engine, while its domestic real estate market that has been called a bubble was set to explode. Others contended that the slowing growth by China observed in the latter half of 2011 was engineered by Beijing to prevent implosion, which has been dubbed a soft landing.

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 16 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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