NEW YORK (Dow Jones News) – A sizable sell-off in U.S. gasoline futures Wednesday dragged the rest of the New York Mercantile Exchange crude futures trading complex lower.
Since Monday’s settlement high of $1.1163 a gallon, the September gasoline futures contract has lost 8.5 cents, or 7.7 percent. Monday’s high had been a new five and a half month high for front-month gasoline futures.
“It’s a free-fall,” said Tony Rosado, floor trader at Zone Energy, reacting to the selling.
“The funds can’t hold until the last day,” said Rosado, commenting on the commodity and hedge funds which are prime direction setters in the futures market because they typically hold large positions. “They’re looking for a place to get out. And there’s a lot of pain for people holding length.”
Traders said selling from Tuesday continued into Wednesday morning as the value of physical barrels in the New York Harbor market for September delivery weakened further. Programmed sell-stops triggered more downward momentum in the market for gasoline futures, and the release of industry and government reports on U.S. petroleum inventories for last week added to losses.
Analysts and traders said throughout the day that it appeared funds with speculative long positions were getting out of September gasoline futures ahead of the expiry of front-month products contracts Friday.
But Peter Beutel, analyst at Cameron Hanover, said he expects bargain hunters may be inspired to step into the market to buy Thursday and Friday. In addition, as players leave early for the Labor Day holiday weekend, thinner trading is likely to increase price volatility, he said.
Light, sweet crude oil futures for October delivery settled 74 cents lower at $31.21 a barrel. Gasoline futures for September delivery settled 4.94 cents lower at $1.0307 a gallon. Heating oil futures for September delivery settled off 2.17 cents at 80.67 cents a gallon.
September natural gas futures dropped 11.1 cents to settle at $4.927 per 1,000 cubic feet.
On London’s International Petroleum Exchange, Brent blend crude oil futures for October delivery settled 59 cents lower at $29.18 a barrel.
Weekly government and industry inventory reports initially prompted losses in crude oil and refined product futures to widen. Re-evaluation of the data later, especially the regional breakdown of inventory decreases, tempered the sell-off somewhat by the close.
The federal Energy Information Administration reported that U.S. crude inventories fell 200,000 barrels to 278.6 million barrels for the week ended Aug. 22, but traders appeared to give more weight to the report by the industry’s American Petroleum Institute. API reported a build of 3.668 million barrels in crude stocks, to 282.969 million barrels.
Gasoline inventory data were more bullish. U.S. gasoline inventories fell 2.9 percent to 191.2 million barrels last week, their lowest level since November 2000, according to the EIA.
The drop of 5.7 million barrels was well beyond the 3 million barrel drawdown expected by analysts surveyed Monday by Dow Jones Newswires, as was API’s report of a 3.6 million- barrel drawdown.
While traders largely shrugged off the gasoline data as already factored into prices, some argued that recent volatility makes the direction of prices still very uncertain.
“I expect in the next two days of this week, almost anything goes,” Beutel said. The reports just emphasize the lack of a “cushion” of crude oil to absorb supply shocks like refinery disruptions or weather-related supply problems, he said.
“You might see some profit-taking before the holiday, but I wouldn’t be surprised to see some strength develop later in this market,” agreed Phil Flynn, analyst at Alaron Trading Corp. in Chicago.
