As the 3rd quarter comes to a close, the September pattern of conflicting movements in petroleum prices is holding true again.  It’s certainly been a September to remember, although unfortunately due to record setting storms, it’s a month that many would rather forget.

RBOB gasoline futures won the daily tug of war match with WTI and ULSD Thursday, dragging them to a lower settlement after a strong start. The reversal from a 5 month high for WTI created the outside-down daily trading bar (a higher high followed by a lower low settlement) that’s known as a “reversal day” and has been the hallmark of several short term pricing peaks this year.  If that pattern holds true, we should see WTI test support at $50 by early next week.

Gasoline prices have been the most volatile this month, and are facing a critical test of support around $1.60 when the November contract takes the prompt position next week.  If that support breaks, there’s really not much on the charts to prevent a 20 cent drop in prices, and with US refineries coming back online and several postponing their fall maintenance, there’s a fundamental argument that favors a large drop as well.   With the driving season behind us and cooler weather moving in, it seems like the best chance for gasoline prices to avoid a big drop will be for ULSD and WTI to keep moving higher.

Right on cue, Bloomberg had an interesting article this week suggesting that ULSD was driving the energy complex higher.  While it’s hard to argue with that sentiment given ULSD futures are trading almost 25 cents higher than they were 2 months ago, Gulf Coast cash differentials have collapsed to pre-hurricane levels this week suggesting that the US plants are up to the challenge, and as the WSJ notes this morning, that fact may be making European refiners nervous longer term.

The international reaction to a referendum passed this week by Iraqi Kurds looking for independence will likely continue having some influence on oil price movements near term.  Threats from Turkey to cut off the pipeline flows through which roughly ½ million barrels/day of oil from the region reaches the market helped push oil prices to multi-month highs earlier in the week, although some are questioning how long that blockade can really last.

The EPA dealt a 2nd blow to anyone bullish RINs this week, announcing that in addition to looking at lower obligation levels over the next two years, it was also considering allowing exported biofuels to keep their RINs, which would add to the options for US refiners to meet their renewable volume obligations.  D6 ethanol RINs dropped to their lowest levels in 4 months on the news, although they did seem to find a temporary floor in the low 60s and ended the day around 66 cents.

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