Cup and Handle Pattern in Gasoline!

Next to Cocoa, Gasoline comes in 2nd place for the best total return performance in Q1 2024 amongst commodity markets. The infamous cup and handle pattern has emerged, adding a level of upside conviction in this trade.

Fundamentals:

Severe weather developments here in the USA and geopolitical supply chain disruption have caused refiner input costs to tick up slightly faster than normal. According to FactSet, the cost of gasoline shipments into New York Harbor next month has jumped 28% since the beginning of the year. This increase surpasses the average of 20% seen during the same period over the past quarter-century.

According to Bloomberg, “In Russia, an expanded Ukrainian drone campaign has hammered key refineries. The damage has required months-long repairs and pushed the Kremlin to conserve domestic supplies by curbing fuel exports.”

Despite record U.S. production, these supply chain shocks have helped boost gasoline prices, thereby increasing refinery profits and margins for those companies that can remain operational. The next OPEC meeting is due on April 3rd, where further production cuts will act as another tailwind for higher crude and gasoline prices.

Technicals:

From a technical perspective, we can see a clear cup and handle pattern forming, which is typically a bullish chart pattern. We would need to see a break and close above $2.85 (the top of the August 15th gap lower) before testing the next major level of $2.95-$2.985. A break and close above this level is likely to lead to an upside breakout.