Tuesday, March 06, 2007

Gas Update...

I have been completely stumped by the recent 30cent jump in gas prices. Ten days ago I paid $2.09 for regular in NJ (there is typically a 25-30 cent spread between NY and NJ due to lower gas taxes in NJ). Yesterday regular unleaded hit $2.79 in Clayton.

I've read lots of possible explanations - summer additives, OPEC cutting production, etc - but nothing explains the speed with which gas prices have risen.

Today, I heard that a major refinery is down for another 2 mths which is causing a dip into existing inventories. This explains some of the rise, but the pace of this increase is still surprising.

I have a suspicion that I can't confirm that the slow trading in other commodities (copper, oil, etc) has led some of the fast money traders to chase gasoline futures because the trend is up. By increasing the price for the gas, the wholesalers have to increase what they charge retailers, etc. I'm trying to get some volume data on gas contracts. I'll post the findings later.

Anyone have any other insights?

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Update: Here are some interesting data points: The NYMEX (basically the stock market for commodities like oil/gas/copper) set their all-time record for volume on 2/23 (roughly 2 wks ago). This record volume broke a record that had been set the previous week on 2/15. What does this mean? As I suspected more and more $$$ is chasing the commodity and that by itself is pushing the price of the underlying asset (gas in this case). We saw this play out in 2006 when oil was trading at $77 when the fundamentals said it should be trading at $60.

To my eye it looks like traders are chasing the quick buck b/c oil and other commodities have been underperforming. Traders are more easily distracted than a 4 yr old at Chuck E Cheese, so I would suspect that they'll move onto something else fairly soon. Unfortunately, that won't help you or I at the pump until they let the gas contract fall back to it's Jan levels, but at least we have a reason for the recent jump in prices at the pump.

Email me w/questions or comments. imissnyc@yahoo.com

4 comments:

Anonymous said...

It is something that we as consumers have put up with way too long. When oil companies can shutdown the refineries that make the gas or fuel oil at their whim, and cause prices to inflate and make huge profits.
The refineries they have are old and outdated and need to be replaced. Yet ask them to build new plants and they cry 'too expensive'.
My thought is they should be made to make sure there is plenty of product before they shutdown for any reason and then come up with a plan to build new modern refineries that would probably be faster and more environmentally friendly. That might help cut into big oil profits.

Anonymous said...

I know a customs agent up north that sees the invoices as a normal course of the entry process for the large tanker trucks that bring wholesale gas from Canada into the US. He stated the price of wholesale gas has actually dropped 6 cents in the last couple of weeks. So, I would guess the recent price hikes are because they can and we consumers will still fill our tanks. I would think with the relatively short or mild winter we have had over much of the country reserves would be up.

Anonymous said...

well Governor Spitzer lets see if you are really for the people, find out whats going on with the fuel prices. something really stinks!

Anonymous said...

TWIST MY NIPPLES!
TWIST MY NIPPLES!

OH YEAH, THAT'S WHAT I LIKE WHILE OPEC HAS THEIR FIST UP MY BUTT TO THE ELBOW!