NYMEX October RBOB corrected sharply Friday, settling 5.61 cents lower at $2.6619/gal, partly erasing a two-day rally that saw the prompt contract trade as high as $2.7577/gal.
Prompt RBOB traded as low as $2.6308/gal early in Friday's session.
NYMEX November crude settled up $1.01 at $93.54/barrel, despite strong headwinds in the form of a stronger US dollar. ICE November Brent settled unchanged at $97/b. The prompt Brent/NYMEX crude spread settled at $3.46/b.
NYMEX October ULSD settled near flat, up 47 points at $2.7005/gal.
RBOB's downward move could be related to the expiration of October options Thursday, signaling that any squeeze play in the market was likely tied to options, rather than futures, which do not expire until the end of Tuesday trading.
"The RBOB gasoline market is undergoing a downward correction to the recent price spike, with the trade flow shifting fairly dramatically under time pressure and thinning volumes ahead of Tuesday's October contract expiration," Citi Futures energy analyst Tim Evans said.
A scramble to secure physical gasoline supply Thursday also contributed to the run-up, and with much of the demand met Friday, prices backed off.
"Most of the [gasoline] wholesalers covered their needs yesterday, bidding up the price," Price Futures Group energy analyst Phil Flynn said.
"Options expiration yesterday definitely enhanced the situation," he said. "Yesterday we saw the market buying fear and breaking news, with rumors about a Colonial Pipeline issue, planned and unplanned maintenance at refineries, and the expiration of the October contract so close at hand."
RBOB NET LENGTH LOWEST SINCE 2010
Flynn said there was a near-record level of money managers net long, and that when the physical gasoline market began to get "jumpy," the hedge funds dashed to cover their short positions.
Money managers had been net long just 8,179 RBOB contracts for the reporting week ended September 16, US Commodity Futures Trading Commission data shows.
The last time money managers net long position in RBOB was any smaller was in 2010 -- also during September -- when the group was net long just 5,656 lots. September 2010 was also the last time prompt RBOB traded under $2/gal. Fresh CFTC data is expected out after the market closes Friday.
"RBOB had everyone leaning to the downside recently," Flynn said. "It was bearish, bearish, bearish... But then the data shows things are getting tighter, and we're looking at yesterday's run-up."
STRONG BACKWARDATION HOLDS UP
Despite the sharp selloff, prompt RBOB is still strongly backwardated, indicating the tightness is more closely tied with October delivery.
With two more trading sessions left with October as the prompt contract, traders and analysts expect the volatility to continue in the short term.
November RBOB settled 5.17 cents lower at $2.4881/gal, a 17.38 cent/gal discount to the October contract. This is in just slightly from Thursday's 17.82 cent/gal backwardation, which had been the widest prompt calendar spread since late-September 2012.
At that time, a short squeeze in the physical market drove the then-October contract to $3.42/gal, after opening below $2.95/gal, just prior to that contract's expiration.
A recent spate of planned and unplanned turnarounds at refineries along the US Gulf Coast, Atlantic Coast, as well as in Eastern Canada and Europe, have crunched near-term supply expectations. That said, much of the maintenance is seasonal in nature, reflecting the softer November futures.
Resupply volumes from Europe could soon be in the offing, with Platts cFlow ship-tracking software showing more than 10 clean tankers fixed for a UK Continent-US Transatlantic voyage.
NYMEX data shows trading volume for the October RBOB contract was around 12,350 lots by 1920 GMT Friday, down from 30,263 lots Thursday. By comparison, the November contract saw 56,210 lots trade by 1920 GMT Friday, down from 74,045 Thursday. Open interest -- which is delayed one day -- in the October contract was around 14,917 contracts Thursday.
With October expiring September 30, open interest has migrated to the November contract. November open interest was 100,753 contracts Thursday.
CRUDE UP $1/B DESPITE DOLLAR SURGE
The rest of the oil market had its eyes on the US dollar and overseas interest rates, Flynn said.
The dollar has been surging of late, putting downside pressure on prompt crude. The US Dollar Index was trading around 85.63 Friday, levels not seen since June 2010.
The surge in RBOB futures is at least partly responsible for any support prompt crude has received over the past few days, the Kilduff Report's John Kilduff said.
"WTI oil prices are mostly holding onto their recent gains, churning in the face of competing pressures from increased supplies, a rising dollar, and strong domestic demand," he said.
