NEW YORK -- Petroleum prices were deregulated back in the early 1980s. In every year since then, spot gasoline prices have rallied from a winter low to a spring peak. Based on NYMEX futures, the 30-year average preseason rally has been a 57% gain in spot contract value. The five-year average preseason rally has been a 39% gain in value. This year’s preseason rally from $2.2945 to $3.1520 was a 26% gain in value.
There does seem to be a recent trend here toward less powerful preseason rallies. No big surprise that this trend correlates with the explosion in U.S. domestic crude output. However, the preseason rallies persist.
I attribute their persistence to the bearish sentiment extremes that typically unfold into the fourth quarter. In fact by Q4, there always seems to be a new list of reasons why this coming year will be the first year with no preseason rally. The longer and more compelling that list, the more reason to prepare for yet another winter-to-spring rally.
Markets never rally because everyone is bullish. Markets rally once everyone is bearish and short. Bears fuel rallies, not bulls.
And this current market boasts plenty of bears, and plenty of reasons to doubt the case for another winter-to-spring rally.
Sentiment in the petroleum complex is the most bearish since November 2008. Momentum indicators are showing the most over-sold extremes since November 2008.
And there is a compelling list of reasons why RBOB will not have a nice rally from Q4 of 2014 to Q3 of 2015. Populating that list are items like an OPEC price war, a continuing contraction in China, the Euro-zone on the edge of a deflationary sinkhole, an up-trending U.S. dollar and an unsustainable bubble in the U.S. stock market. Quite an impressive list.
However as I just noted, bears fuel up-trend markets, not bulls. And there is more than enough fuel already available to power a nice winter-to-spring RBOB rally. The thing to watch for is whether RBOB has already bottomed or not.
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