Goldman Sachs: RBOB Gasoline Sees Uptick in Open Interest as Storm Shapes

Tropical Storm Francine made landfall early Tuesday off the Texas Gulf Coast with sustained winds of 65 mph. The storm is expected to become a hurricane later today as it crosses northeast toward the Gulf Coast and becomes a looming threat to dozens of offshore oil and gas platforms and inland refineries.

“The storm is starting to come together,” AccuWeather hurricane expert Alex Dasilva told USA Today, adding that warm Gulf waters served as “rocket fuel” for the storm.

The latest weather models expect Francine to strengthen into a Category 2 system tomorrow afternoon or evening and make landfall on the Louisiana coast.

On Monday, Chevron, Exxon Mobil and Shell announced workers at offshore platforms in the path of the storm were evacuated and drilling activities suspended.

Goldman’s Robert Quinn provided a helpful breakdown of what’s happening in energy markets ahead of the storm’s landfall in an area that’s home to much of America’s energy mix, including refining.

Commodity markets rallied on September 9 due to the looming threat of Francine. The tropical storm threatened to become a hurricane by September 10 and headed toward the Gulf Coast. forcing some oil drillers to shut down production. RBOB Gasoline saw a sizeable gain in open interest: $1.1 billion, the second-biggest one-day jump in 2024. Given the rise in OI locality, a mix of outright and short-term buying likely occurred. The overall low inventory environment and disappointing financial positioning has driven the influx of discretionary strategies. That said, the price reversal has barely affected the current downtrend. Thus, CTA shortcuts are not yet vulnerable.

Here are Quinn’s highlights:

• Commodity markets rallied on September 9 due to the looming threat of Francine. The tropical storm threatened to become a hurricane by September 10 and headed toward the Gulf Coast, forcing some oil drillers to shut down production. October RBOB gasoline and diesel contracts ended +1.3% and +1.2% respectively. The large calendar fronts have tightened, with October-November RBOB recovering from record lows.
• RBOB Gasoline posted a sizeable gain in open interest. Aggregate open interest rose $1.1 billion, marking the second-biggest one-day jump in 2024.
• Given the growth of the OI locality, a mix of outright and short-term buying has likely emerged. November (+$675) and December (+$300) led. October was down a modest -$125 million given the presence of index rolling activity.
• The overall low inventory environment and disappointing financial positioning has driven the influx of discretionary strategies. According to Goldman Sachs Investment Research, worldwide gasoline inventories are at the low end of a 5-year range. Additionally, since the last trader commitment update on September 3rd, the combined length of the managed, other and non-reportable money RBOB of gasoline has stood just above the multi-year low.
• That said, the price reversal has barely affected the current downtrend. Thus, CTA shortcuts are not yet vulnerable. According to GS Futures Strategists modeled fund analysis, a ~11% move is required to change any of the 3 momentum thresholds.

Quinn’s chart pack.

RBOB Gasoline October-November Calendar Spread

RBOB Gasoline Aggregate change in 1-day open interest ($ notional)

RBOB gasoline inventories

RBOB Gasoline managed money, other and non-reportable net positioning vs price

RBOB Fuel impulse signals

While WTI futures have fallen in recent weeks on fears of a China and US slowdown, prices found a temporary low around $68/bbl before the storm made landfall.

Energy traders have all eyes on the Louisiana area.

By Zerohedge.com

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