The latest data from the Energy Information Administration (EIA) showed that the national average cost for Regular gasoline in America fell by five cents to $2.35 per gallon over the past week. That is the first week-over-week decline since early May but still a rebound of roughly 36 percent from the multi-year low of $1.72 per gallon hit in February. Regionally, the cheapest gas in the country can be found in South Carolina, where a gallon of Regular costs just $2.02 on average. Residents of California again have to pay the most in the U.S. for Regular at $2.86 per gallon, with San Francisco also being the city with the nation’s highest average gas price ($3.00 per gallon). The continued rise at the pump seen over the past few months is not surprising because a significant rebound in the price of oil has persisted during this same period. In fact, West Texas Intermediate (WTI) has surged from being down nearly 30 percent year-to-date in February to up almost 40 percent earlier this month. Moreover, this current rally is the largest uptrend on record for crude oil outside of the spike that followed the 1990 Iraq invasion of Kuwait.
The sharp rebound was initially driven by short-covering, i.e. weak hands forced to cover their bearish bets as prices rose rapidly, but the uptrend has lost momentum in recent weeks. Indeed, profit-taking following the significant run-up has likely been a factor behind oil stalling somewhat around the $50/barrel level but bearish bets have also increased recently. For example, hedge funds slashed their net long positions in WTI and Brent crude derivatives contracts by 63 million barrels (10 percent) in the week ending June 14. That is the largest 1-week reduction in hedge funds’ net long positions since July 2014, according to an analysis by the U.S. Commodity Futures Trading Commission. Further, hedge fund short positions in NYMEX WTI over the past two weeks jumped by 43 million barrels (more than 80 percent). However, non-OPEC crude oil supply is currently at the lowest level since September 2014 and other supply disruption risks exist. Such issues could help keep the price of oil elevated.
Sources: U.S. EIA, DShort, GasBuddy, Bloomberg, Twitter, Reuters, CME, ICE, CFTCPost author: Charles Couch