Yesterday marked the first instance since the third week of January that gasoline futures moved lower for two consecutive days. It’s worth noting because during the $1.00 gal or so spikes in 2005 and 2006, there were many such streaks of two or three down days mixed into the bull run. However, while gasoline futures moved lower, the spot and wholesale prices for gasoline on the West Coast moved sharply higher. This morning finds California bulk gasoline blendstock -- what’s known as CARBOB - - selling for about $36 bbl above the cost of crude. The old rule of thumb used to be that West Coast refiners make $10-$12 bbl on gasoline, versus $5-$7 bbl margins for the rest of the country, but that rule is as dated as the Betamax.
Dueling gasoline indices. Yesterday, the Department of Energy reported that U.S. gasoline prices averaged $2.505 gal in its latest survey. Our own much more granular survey this morning finds the average unleaded regular price at $2.49 gal. The OPIS retail database that is put together each day for AAA consists of about 100,000 unique station prices, or about five times as many as any other survey. You can check the prices daily at www.fuelgaugereport.com
Whether we’re at $2.49 gal today or $2.505 gal doesn’t really amount to a hill of beans. We are still headed higher, particularly in western states where a few more metro areas will burst through $3.00 gal averages by the weekend. The odds favor a further move of 5-20cts gal for the rest of the country as well.
Where might this year’s preseason peak be?
There is always a preseason gasoline rally, and it has manifested itself in the futures and spot markets now for more than 25 years. The difficulty comes in determining whether it’s a sprint, a medium distance race, or a marathon, and one could be a highly successful trader if one can determine which month will bring the finish line.
A short bit of history. There has been a spot rally in each of the last 28 years. In 22 years of gasoline futures’ action, the average preseason rally has pushed gasoline values to a peak about 57 percent above the off-season low. If this year is an “average” year, then one might expect the RBOB gasoline futures contract to peak just shy of $2.10 gal. The best any analyst can do is assess whether one is living in a year prone to an average move, a below average move, or one of those apocalyptic years like 2005 and 2006. I do not believe that this is an apocalyptic year.
April and May are by far the most likely months that peaks are registered. In the last 28 years, the apex of the market was hit 20 times in those purely Spring months. There were 8 peaks in May; three in June; one in July; and 4 in March.
My thanks for these numbers go to Walter Zimmerman at United energy (www.united-energy.com) who is perhaps the most authoritative technical expert on market symmetry. I won’t go into the realm of technical analysis except to say that Walter is a Gatekeeper or Kung Fu Master of the “chutes and ladders” that professional traders need to recognize if they want to stay ahead of the price curves. Technical analysis in this world is nothing more than a sophisticated reckoning of crowd behavior, history, and probability.
My gut feeling is that this year will see an earlier peak than normal for gasoline futures. The numbers could peak in March, and that would portend a wholesale price peak in March. A wholesale peak in March suggests that U.S. retail gasoline prices will see their preseason peak in April, about two months before the actual driving season.