SPGSHUP: Expect More Bearishness As Gasoline Fundamentals Deteriorate


Investment thesis

Since our last publication on the S&P GSCI Unleaded Gasoline Index Excess Return (SPGSHUP), our bullish view did not materialize and the Index declined moderately, down 2.96% to $977.03.

Going forward and given that U.S. gasoline storage rebounded slightly during the week, oil cracks are on a declining path and demand for the motorists blend is weakening, we are now bearish on the SPGSHUP Index.

With gasoline storage rebounding slightly and oil cracks decelerating, the SPGSHUP is poised for additional bearishness

While American gasoline storage declined moderately in the month of August, down 2.67% (m/m) to 228.9m barrels, following three consecutive weekly declines, the complex rebounded slightly on the week ending September 13, up 0.34% (w/w) to 229.7m barrels, the EIA shows.

With these developments, seasonality on gasoline storage widens and stockpiles are now in a surplus of 3.8% or 8,321k barrels compared to the five-year average and in a slim deficit (1.9% or 4,465k barrels) versus last year’s level.

Source: US Stocks of Crude Oil Report and Petroleum Products – EIA

Besides, refining utilization rates have moderately declined during the corresponding period, down 4.1% (w/w) to 91.2% and motorists demand for the gasoline blend is decelerating, indicating renew headwinds on the SPGSHUP Index.

On the other side, oil cracks remain subdued, even if gasoline spreads lifted 35% (w/w) to $6.26 per barrels on the week ending September 20. Recent volatility in crude oil markets triggered by the drone attacks on Saudi oil facilities, coupled with high gasoline stock levels in the U.S. somewhat explain this decrease.

Source: Quandl, Oleum Research

In the last ten years, the seasonality of RBOB prices has delivered negative returns on the month of October, declining in average by 1.4%. This unfavorable monthly seasonality sustains our bearish view on the complex and on its proxy, SPGSHUP.

Source: Oleum Research

Speculator bets

According to the latest Commitment of Traders report, published by the CFTC on the September 10-17 period, speculators lifted for the second consecutive week their bets on NYMEX gasoline futures, up 3.93% (w/w) to 51,181 contracts. In the meantime, the SPGSHUP Index lifted sturdier, up 4.85% to $984.02.

Source: CFTC

While bets on the gasoline complex have plummeted on a monthly basis, down 14.22%, the appreciation witnessed last week has been mostly due to fresh long accumulations, up 3.63% (w/w) to 118,063 contracts and was partly counterbalanced by short accretions, up 3.4% (w/w) to 66,882 contracts.

Thus, the sentiment on gasoline futures has materially decreased since the beginning of the year and this diminishing interest indicates that speculator sentiment has now turned neutral.

Since the beginning of 2019, net spec positioning on gasoline futures dipped 38.26% or 31,716 contracts, whilst SPGSHUP YTD performance advanced robustly, up 21.42% to $982.94.

Gasoline fundamentals deteriorate, as demand for the motorists blend dips

The supply-demand equilibrium deteriorated steeply in the past week. While net production of finished gasoline decreased 2.54% (w/w) to 9.8m barrels per day, weekly U.S. demand for the refined blend plummeted 8.85% (w/w) to 8.9m barrels.

Source: Oleum Research

In front of that, U.S. crude oil, which is the biggest factor of gasoline price formation, has stabilized thanks to Saudi vows to restoring its pre-attack crude oil output level by the end of the week.

While these geopolitical developments have triggered the largest crude price spike in history, the geopolitical risk premium on oil seems now to have vanished, as U.S. crude output remains robust and healthy oil storage in American contributed to balancing the market.

In front of that, the Brent future curve increased considerably its contango slope on short-term maturities indicating that the market remains undersupplied, whereas gasoline futures contango curved eased, pointing toward additional pressure on the complex and its proxy, SPGSHUP.


In this context characterized by a weakening demand for the gasoline blend, subdued oil cracks, and rebounding storage levels, the SPGSHUP will remain under pressure in the forthcoming weeks.

That being said, we are now reverting our positioning, with a bearish recommendation for the month of October.

We look forward to reading your comments.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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