Despite a tailwind from hurricane related refinery shut-ins, gasoline has failed to hold above $1.70/gallon for the third time in less than a year. With the end of summer driving approaching and the potential for distorted inventory reports, gasoline may remain active in the coming days and weeks.

Technicals:

For most of the last year, gasoline has been stuck in a trading channel between $1.30 and $1.70. In April, July and now August, gasoline has tried but failed to decisively break out of this range to the upside.

A third technical failure confirms $1.70 channel resistance and  (”three strikes and you’re out”) leaves gasoline vulnerable to a downward correction, particularly with a negative RSI divergence also emerging recently to indicate weakening upward momentum. 

Initial support in a downturn may appear near $1.68, $1.63 then the 50 and 200-day averages closer to $1.55.

Fundamentals:

The big storm has led to the temporary shuttering of the big Gulf Coast refineries which could lead to shortages refined products like gasoline in the coming weeks. At this point it remains unclear how much damage has been done and how long these shut-ins may last. Weather related disruptions are usually seen as temporary by the markets and price spikes can vaporize just as fast as they materialize.

Traders should note that we are still in the seasonally weakest time of the year for gasoline which runs through November. Summer driving season (peak demand for gasoline) ends with the upcoming Labour Day long weekend.

Due to the storm impact, we could see significant swings in gasoline inventories in the coming weeks which could have spark significant swings in the gasoline price.