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Supply Limits and Upside Risk

There are a number of short-term supply considerations for wholesale gasoline (RBOB) and this led to a price spike this week.

We follow Bank of America’s excellent daily commentary — one of several great sources on up-to-the-minute energy price information. Here is a key thought from their daily commentary:

It feels as though the market is still concerned with gasoline availability as stocks in the US are fairly low while there is less refining capacity in the Northeast. Thus, any disruption to supplies coming either from a weather event or otherwise means price distribution remains skewed to the upside. As the potential remains for both tropical storm weather and extreme heat wreaking havoc on the thinning refining complex in the near term, the pain trade for gasoline maybe to the upside in the short term.

This kind of information is helpful in putting the daily fluctuations in perspective. For our clients we emphasize looking at long-term trends and futures prices for various periods. The forward curve may provide a better opportunity than what you can see in daily prices.

Local pump prices can be especially misleading.

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