The prices of crude oil fell overnight to correct the price gap created after OPEC+ announced that oil production would be reduced, earlier this month.
This inability to hold gains suggests that the demand for energy during Northern Hemisphere summers might have been overestimated.
The structure of WTI Futures might weaken further if it maintains its current relationship with RBOB crack spread.
RBOB stands for reformulated blendstock for oxygenate blending. It is a type of refined gasoline that is traded on the commodities market. Crack spread is the pricing difference between crude oil and the products made from it.
The gauge of this pricing reflects the profits made by refiners. If the profits made by refiners go down, so will the demand for crude oil.
Just like the VIX index is an indicator of volatility on the S&P 500 index, the OVX index indicates the volatility of WTI Futures.
The volatility of WTI Futures did tic up but it is still subdued. The low price difference between the two Futures contracts reflects the market’s comfort level with the current pricing of oil.
Even the data released by EIA, America (Energy Information Agency) did come in support of oil pricing. The data shows that the inventory fell by 5.054 million barrels of oil instead of the anticipated 1.486 million barrels in the week that ended on 21st April.
Despite higher consumption, as mentioned above, crude prices did not find support in the market. Analysts are speculating whether there were some other problems that OPEC+ identified which led them to cut production.
The oil prices are back to the levels before the announcement now. Analysts believe that this correction in the gap is a sign that oil could be in a range trading type of environment.
