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While we think that crude oil and gasoline prices were technically short-term overbought around the April highs, we also think energy prices might have been a touch overvalued from a fundamental perspective. However, global energy demand is recovering and big physical supply excesses appear to be getting worked off. In fact, US EIA crude oil stocks have now fallen below year ago levels, and EIA gasoline stocks have seen their year-over-year surplus narrowed, with weekly declines in six of the last nine weeks after peaking earlier in the year.

Another interesting development is that US gasoline imports are in the midst of a decline, and with the US refinery operating rate still sitting below the 5 year average as we approach the end of April, refineries don’t appear to have much room for error as the summer driving season approaches. Traders should make no mistake about it; gasoline stocks are not to be considered tight at this time. However, they might be poised to tighten.

It is also possible that improving economic data and an ongoing pattern of rapidly expanding auto sales in developing countries (General Motors recently reported record auto sales in Argentina, Brazil, China and India) point to a turnaround in the global economy and the stronger gasoline consumption. (In the month of March China once again bought more cars than the US. This is becoming a pattern!) No doubt a continued world recovery is necessary for further gains in US gasoline prices, but we suggest that periodic big-picture anxiety events that result in sharp setbacks in crude and gasoline prices should be seen as opportunities to get long. Unfortunately, to reduce the magnitude of an effective stop point on a long futures position, it might require traders to wait for a break in July RBOB down to the $2.2510 area.