Refiners Support Unleaded Bounce

The Brexit vote caused a spike in volatility by creating an instant, “risk off” trade. The ensuing sell-off appears to have created a buying opportunity in unleaded gas futures that should continue to be supported by growing domestic demand through the summer vacation season.

The Brexit weakness has failed to push unleaded below its recent support around $1.45. Furthermore, commercial traders, the oil refiners, have been buyers in five out of the last six weeks. There’s no question that economic uncertainty leads to economic contraction and thus, should lower global petroleum demand. However, here in the US, we expect gasoline demand to remain solid through a heavily traveled road tripping summer. This should help offset potential global weakness in the near-term.

The reality of this trading situation is that the market has an historical tendency to price in years’ worth of forecast in about fifteen minutes once an economic event is deemed to have occurred. The Brexit vote was just the beginning of a process that will take years to unwind, if at all. That makes the knee-jerk sell-off in the unleaded sector a value proposition, as attested to by the actions of the commercial traders within their own market.

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We suggest taking advantage of this value proposition by purchasing unleaded gasoline futures. While our mechanical strategy was stopped out at a loss following the vote, our discretionary model just broadcast its buy signal in the August contract with a corresponding protective stop price at the new, swing low of $1.4685.

The commercial traders have done a good job selling the highs (producers) and buying the lows (refiners).
The commercial traders have done a good job selling the highs (producers) and buying the lows (refiners).

For more information on how we use commercial trader buying and selling in our discretionary and mechanical swing trading programs, please visit CotSignals.com.


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