Gasoline belatedly takes role of summer oil driver

By Ikuko Kao and Janet McGurty - Analysis

LONDON/NEW YORK (Reuters) - Investors have been slow to make their seasonal move into gasoline ahead of the U.S. driving season, but now have helped to push oil to six-month highs and are likely to keep providing modest price support.

Economic downturn and the credit crunch had warded off the investors that typically bet on a summer upsurge in gasoline use in the world's biggest fuel burner.

U.S. demand is still lagging year-ago levels, although cheaper fuel prices are expected to provide a spur and consumption of gasoline has been higher than that of other refined products.

Countries such as China, where economic growth has remained positive, and Iran, which lacks its own refining capacity, have also provided support, analysts said.

"It is still difficult to call it a strong market. But at least the gasoline market is balanced or getting close to being balanced," said Oliver Jakob of Petromatrix.

Benchmark U.S. RBOB gasoline futures have risen to six-month highs above $1.70 a gallon, breaking Goldman Sachs' 12-month target. Since the end of April, it has risen by around 14 percent.

U.S. crude, which hit a six-month high of nearly $60 on Tuesday, had also risen by around 14 percent between the end of April and Monday's closing price.

Its crack, or premium, to U.S. crude futures showed even more strength, rising to above $14 a barrel last week, compared with only $8-$9 in early May last year.

Earlier this month, the front-end of the RBOB curve flipped into backwardation -- a market structure meaning prompt supplies are more expensive than those for later delivery and indicative of stronger prompt demand.

The switch from the more bearish structure of contango happened a month later than last year.

"Speculative buying interest rebounded amid firm cracks on RBOB futures," said Harry Tchilinguirian of BNP.

"The resilience of the gasoline crack in this context is surprising, but as long as it is sustained, so will the interest for go long gasoline futures relative to crude."

FOCUS ON THE BULLISH

He said that although inventory levels were higher than a year ago, traders had chosen to focus on week-on-week falls in U.S. gasoline stocks over the past several weeks as indicators of a strengthening trend.

Similarly, Chris Lafakis, an economist with Moody's Economy.com., said even though U.S. gasoline demand had remained below year-earlier levels, the gap had been narrowing.