Thursday, June 23, 2011

Cheaper gasoline on the way

The top chart compares crude oil (orange) and wholesale gasoline prices (white), and the inference I draw is that crude prices are leading gasoline prices on the way down. Today's $91 crude price suggests that wholesale gasoline prices should fall to at $2.70/gal or less. The bottom chart compares wholesale gasoline (white) and regular gasoline prices at the pump (orange); the tight correlation between the two suggests that if wholesale gasoline prices fall to $2.70, then prices at the pump should fall to $3.40 or less, compared to today's $3.61 average nationwide price for regular. That would result in a 15% net decline in gasoline prices from April's highs, which in turn would reverse most of the bulge in oil prices that started last February.

If higher crude and gasoline prices contributed to the economy's slowdown in the first quarter, which seems likely, then the reversal in prices over the past two months should help support the economy this summer.

P.S. And all of these price declines so far have happened without any assistance from government policies. It's been a natural market reaction to the combination of a rise in price and a rise in crude inventories. Today's announcement by the IEA that it will be releasing crude inventories into the market will likely have only a minimal impact compared to the larger fundamentals that are driving the market.


Benjamin Cole said...

Well, I think Scott Grannis is just trying to drive me crazy. Easy enough to do.

Now, gasoline prices are falling, but yesterday it was livestock prices are rising.

I still say the Japan scenario is the one to worry about, the biggest threat to American economic prosperity and security.

TradingStrategyLetter - Weekly Summary said...

A major 'short-term' dividend I'm afraid.

Public Library said...

Why is the IEA dropping oil into the marketplace?

We are witnessing central planning on all fronts gone wild....

Bernanke quoted as having more sympathy for central bankers now than 10 years ago when he lambasted Japan.

QE3 here we come...

John said...

Is Uncle Sam in the oil business now? Where does the oil go when it leaves the SOR, or does in not really leave? Does the government sell the oil? At a profit?

Sounds good to me. Now, sell some gold.Drive the price down, buy it back.