(Reuters) - Gasoline futures, which supported crude as they rallied ahead of the peak U.S. summer driving season, could return to February lows after an erratic eight-week run that included a high for the year, technical charts showed on Thursday.
Gasoline has set the price direction for crude and other oil products in the past two months as focus turned toward the demand for motor fuels ahead of the summer.
U.S. benchmark gasoline futures, also known as RBOB, reached $2.1858 a gallon last week, their loftiest level since November. Gasoline bulls are counting on further highs after government data this week showed demand for the fuel at its strongest in 24 years.
Chart watchers, however, see RBOB’s front-month contract vulnerable to testing a late February trough of under $1.60, after Thursday’s settlement at $2.0368.
“If a top for gasoline is not already in place, we’ll have one in the next couple of weeks,” said Brian LaRose, analyst at United-ICAP in Jersey City, New Jersey. “There is extreme downside from here.”
He said the potential for near-term weakness was based on two factors: the relatively late peak in gasoline this year and the largest rally for the fuel in six years.
Since 2010, RBOB has peaked between March and May, about four to three months before the seasonal highs in gasoline demand. So, last week’s seven-month high looked much like the market’s top, LaRose said.
Gasoline’s 42 percent surge in the half-year-to-date is also the most since the record 88 percent gain in the first half of 2008, when fuel prices experienced a massive recovery rally from the financial crisis.
If RBOB broke below the $1.9593 support, it could snap the 200-day moving average of $1.9098 before taking out the 100-day average of $1.8907, LaRose said.
The next downside would be $1.6174, which marks a Feb. 25 low and 26 percent drop from the last week’s seven-month highs. From there, it could slide to $1.5929, completing the so-called “Fibonacci 618 retracement”, he said.
Peter Ruud, technical analyst at Informa Global Markets in New York, also sees weakness for RBOB although he thinks there is a chance for it to aim for a $2.33 high if it gets past $2.20 by next week.
“We have to pierce the $2.20 resistance, otherwise it’s not likely to happen,” Ruud said. “It could be a long shot, as we are already entering the Fourth Elliot Wave, which in the final wave of support in this cycle.”
Reporting By Barani Krishnan; Editing by Jessica Resnick-Ault and Meredith Mazzilli