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Markets can throw you a curveball when you least expect it.
After U.S. strikes destroyed three Iranian oil tankers on Saturday and five more were reportedly hit on Tuesday, you might expect the entire energy complex to move in the same direction. Crude up, gasoline up — the usual playbook.
Not this time.
On Wednedsay, WTI crude climbed about $3 to settle near $96 a barrel as the market priced in growing supply risks from the Middle East. But gasoline futures moved the other way, with October RBOB falling about 4 cents on the day.
That’s not something you see every day.
Why the Split?
Crude and gasoline can move in opposite directions, but this kind of divergence is worth watching because the two markets can be responding to very different forces.
Crude is carrying a significant geopolitical supply premium as traders assess disruptions to oil flows through the Middle East. Gasoline, meanwhile, has its own set of supply, refining, inventory and demand factors that can pull it in a different direction.
That doesn’t necessarily mean gasoline is predicting weaker consumer demand. But it does show that a major geopolitical shock doesn’t automatically push every part of the energy complex higher at the same time.
It’s one of those days when the headlines and the tape don’t line up the way the textbooks say they should.
What It Means for Your Watchlist
If you trade energy, this kind of divergence can create potential opportunity — but only if you’re watching more than one piece of the complex.
A geopolitical headline doesn’t guarantee that crude and refined products will move in lockstep. Crude can rally on supply fears while gasoline futures respond to a completely different mix of market forces.
Keep your eyes on how crude and gasoline behave relative to each other.
When they split like this, the divergence can tell you that there’s more happening beneath the headline — and that’s where the market gets interesting.
Geof Smith
Geof Smith TradingÂ
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
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