Crude Slumps as Fears of Declining Demand Weigh on Prices

Crude oil prices were lower on Monday, as Syria, geopolitical risks, and trade jitters continue to hang over the markets and are starting to weigh on confidence. There could be a lack of demand due to a conflict with Russia that is also weighing on crude oil prices.

Crude oil moved lower testing support near the former breakout level at 66.40.  Additional support is seen near the 10-day moving average at 64.90. Resistance is seen near the April highs at 67.77. Momentum has turned negative as the fast stochastic generated a crossover sell signal in overbought territory. The MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory which reflects consolidation.

Seasonally Gasoline Should Rise in April

Gasoline prices are on the rise ahead of the driving season. There are several components to the price of gasoline, which include the price of crude oil, the gasoline refining margin as well as taxes.  With crude oil on the rise, and the crack on the upper end of a 2-year range, gasoline prices at the pump this summer will likely be higher than last year. Seasonally, gasoline prices rise during April, but appear to lose their luster following the commencement of the U.S. driving season.

The seasonality of gasoline prices at the wholesale level show that prices generally rise through April. A seasonality study of gasoline futures prices over the past 12-years, show that prices are higher 75% of the time in April for an average gain of 3.7%. Gasoline generally increases ahead of the driving season as traders speculate on whether there will be enough stocks for the upcoming season.  Once you get into the summer months the upward price action in gasoline becomes unpredictable from a seasonality standpoint. May, June and July are generally a 50-50 proposition swinging from a small average gain to a small average loss.

Gasoline margins generally experience their best performance in February prior to the driving season. Along with February November is a strong month for gasoline margins over crude oil prices climbing 77% of the time and averaging a return of 1.1%.

Despite a projected decline in margins from current elevated levels, the Department of Energy believes that there will be accelerate gasoline exports and higher domestic consumption which will help gasoline yields remain elevated throughout the summer.  Projected gasoline consumption for summer of 2018 averages 9.6 million barrels a day, up slightly from last summer. EIA projects that summer highway travel will increase by 1.3%, compared to last summers, highway travel had increased by 1.2%.