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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 | 

June 27, 2012

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.

Filed under:Ask Jeff,Fuel Price Trends | by OldProf @ 9:31 am | 

May 28, 2012

Summer Driving Season


I saw a great article this weekend on the start of the summer driving season. AP Energy Writer Jonathan Fahey really nails it with this summary:

Our rants about gasoline and the oil industry may not always be based on facts, but one thing is undeniable: Americans are obsessed with the price of gasoline. More than any other good or service we buy.
In the language of economists, the price of gasoline is “salient.” That means it sticks in our brains. Here’s why:
We’re reminded of the price every time we pass a gas station and see those huge, numbered signs. We buy gas every week, unlike bills we pay monthly or a couple times a year. Milk is $4 a gallon, but we buy only one. When we fill up with gas, we spend $50 or more.
And the biggest frustration, which comes into focus as the numbers spin ever higher at the pump: There is no alternative.

The whole article is well worth reading.

It is an interesting time, with several factors in play:

1) Summer driving season has this on people’s minds;
2) Risk is still high;
3) Prices have eased.

This is a great time to think about locking in prices — if you have the ability to do so.

September 25, 2011

Can Oil Prices Reach $500 per Barrel?


With energy prices falling, most observers relax. Understanding energy prices requires a deeper understanding of fundamental factors.

There is also the matter of time frames. In the short term prices may be softer, responding to global factors like the currency trade or perceived economic weakness. We need to put this in a broader perspective.

Here is the observation of John Taylor, head of the largest and most successful currency hedge fund:

In five years, he says, “we could see oil at $500 a barrel. I would be a buyer on dips of oil.

His bold prediction could be wrong, but it is worth considering. Here at Pumps we agree with the basic thesis — long term strength in energy prices, current weakness presenting an opportunity.

Filed under:Ask Jeff,Fuel Price Trends | by OldProf @ 8:31 pm | 

July 7, 2011

Gasoline Futures Prices Spike Higher


So much for Obama’s Strategic Petroleum Reserve move!

As PumpGirl noted, oil prices moved higher, perhaps in line with the (modestly) positive economic news from the ADP jobs report.

Meanwhile, gasoline futures at the NYMEX spiked higher by almost thirteen cents! The entire forward curve for the next year is up by more than ten cents. I looked at the bottom month in the next year and the implied pump price is about $3.50. The average is significantly higher.

For managers who are planning ahead, the window of opportunity to lock in prices may not be open for long.

Filed under:Ask Jeff,Fuel cost,Fuel Cost Control,Fuel Price Hedging,Hedging,Price Shocks | by OldProf @ 9:23 pm |