Roll dynamics and seasonals complicate interpretation of the XB1 price chart
September 4, 2024
Key Observations:
As we explain more fully in a prior commentary, yesterday’s 5.5% dive in gasoline prices embodies a powerful seasonal (Swingtime, 3-Sep-2024).
If you pull up the rolling continuous price chart for NYM RBOB gasoline (Bloomberg: XB1 Comdty), you’ll find this price is now below $2.00 per gallon and at the year-to-date lows. In fact, the exact date this price last touched $1.97 is Dec 13, 2023. Yes, the day of Powell’s infamous pivot. That pivot spurred premature expectations for large rate cuts that in turn launched sharp upside reversals in gasoline, gold, and other commodity prices.
That’s a foreboding comp given current fragility in confidence across global markets and the two weeks purgatory until the next FOMC meeting.
More immediately, there are two days of suspense before release of the Aug-24 U.S. non-farm payroll and household survey data. On this timetable, the plummet in the XB1 price feeds valid concerns about consumer demand. It can also enflame fear.
In this light, we make three observations.
First, that latest sharp hook in the orange curve is a roll between futures contracts. Specifically, U4 expired at 221.17 cents per gal on Fri Aug 30, when V4 expired at 209.32. The 5.5% calc is V4 against V4; rolling charts show V4 against U4 for a 10.6% daily price change. This is a ghost in the machine.
Second, yesterday’s V4 settlement moved to the 5-year average with a startling precision rarely seen this year (197.77 v 197.68). That looks like another machine ghost chasing the first: algos.
Third, now compare the 2024 chart against an average curve that excludes 2020 to adjust for the distortions of the pandemic lockdown that year. From this perspective, the algo-aided dump in XB1 looks potentially oversold. We need to watch butane, ethanol, and cash prices for other gasoline blending components for further clarity.
Source: NYM, Bloomberg, Blacklight Research.
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