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September 30, 2012

How to Monitor Fuel Prices

 

Here is an interesting chart. It shows the forward curve for wholesale gasoline futures (RBOB) for the last three weeks.

The key aspect to note is that the front month price moved thirty cents higher in two weeks, while the overall curve declined by about fifteen cents.

Observers who watch the popular media front-month price will be misled — seriously!

Monitoring fuel prices is best done by considering the entire forward curve.

Filed under:Ask Jeff,Fuel cost,Fuel Price Trends | by OldProf @ 11:26 pm | 

More on the Mystery Decline

 

After nearly two weeks, the sudden decline in oil prices is still a mystery.

Prof. James Hamilton, the go-to expert on energy pricing, disparages the “Fat Finger” theory. (This is the shorthand insider term for a mistake).

For starters, look at the chart of the intra-day trading:

Prof. Hamilton explains two important things:

1) The fundamentals do not change that quickly; and
2) QE3 will definitely have an effect.

Here is his conclusion:

There are several channels by which QE3 may end up influencing the quantity of oil physically produced and consumed. A lower value for the U.S. dollar would mean a greater quantity demanded worldwide at a given dollar price of oil. A higher level of economic activity (the ultimate goal of QE3) would also boost demand for the physical product. And lower real interest rates may make it profitable to store more oil physically, leaving less available for the ultimate users of the product. So I would have expected QE3 overall to be one factor that could contribute to a higher dollar price for oil.

But any investors who have been assuming that QE3 will boost the price of oil for no reason other than the fact that other traders expect it to raise the price of oil may find themselves tripping painfully over the fat finger of reality.

John Kingston at Platts adds a very important point: The market did not immediately rebound! in the long history of erroneous trades, the market learns of the error and the price responds. Mistakes are costly. Since this was not the case, it suggests other explanations.

And finally……

Let’s not wait for the official verdict on this one. We are only now learning about an overnight mystery move in 2009.

It seems that the trader in question was drinking while trading!

While we cannot anticipate every twist of the markets, we do provide a helpful monthly perspective through our “Eyes on Energy” report. It has been pretty accurate. This is a no-cost, no obligation service. Just write to us at (main at gas-lock dot com).

Filed under:Fuel cost,Fuel Price Trends,Price Shocks | by OldProf @ 9:04 pm | 

September 28, 2012

On The Flip Side

 

The Daily Kos says the Arctic Oil & Gas Rush is indeed on.

It cites an article in the NYT this week that Big Oil Companies in the West are in a race with China to drill and mine that virgin territory in the melting Arctic.

Filed under:Energy,Fuel Price Trends,Presidential Election | by Pump Girl @ 6:56 pm | 

September 26, 2012

Drilling in the (Melting) Arctic Tundra?

 

Arctic ice is melting. Oil and mining companies are licking their chops. But not all oil companies.

Total CEO Christophe de Margerie said Not for Us. An oil spill in Greenland would be disaster, and a leak would do too much damage to the company reputation.

Did the 2010 BP Deepwater Horizon episode actually have a positive influence? Shell and Cairn are you listening?

Filed under:Energy,Fuel cost | by Pump Girl @ 10:18 am | 

September 18, 2012

More on the Mystery Selloff

 

There were plenty of theories about yesterday’s mystery selling in the crude oil market. (via Reuters)

  • Volume and liquidity was low because of the Jewish holiday.
  • There were effects of contract expiration, where some traders “roll” to new months rather than make or take delivery.
  • There was a rumor about a possible announcement of a release from the Strategic Petroleum Reserve.

The CFTC is investigating.

After the market close today a new theory emerged. It now seems that a single large trade may have sparked the selling, leading to “technical” trades by smaller market participants and algorithmic traders. The reason behind the initial trade is still not known. It could be forced selling from a hedge fund in distress. Some think it could be a change in fundamental analysis by a big firm. If so, it was an exceptionally clumsy way to change a position!

This type of trading action attracts a lot of attention, but does not provide much insight about the underlying fundamentals of the oil market.

More to come…

Filed under:Daily News Post,Fuel Price Trends,Price Shocks | by OldProf @ 8:38 pm |