Gasoline Pulls Back

by Jay Pestrichelli on May 7th, 2012

Have you noticed gasoline has dropped in 13% in the last 5 weeks? I didn’t either, but it has. Gasoline futures topped out this year with an intra-day price of $3.4278 a gallon on April 3rd. But they have pulled back substantially dropping intra-day to 2.91 a gallon.
If you’re like me you hardly noticed this change and that’s because the price at the pump hasn’t felt the same decline. Up until last week, national prices have only dropped 3%, from $3.94 to $3.83 a gallon according to the US Energy Information Admiration. www.eia.gov.

We do expect the report to show additional decline once they get the first week of May data published. In case you’ve never checked out the site, its not a bad source of information on all sorts of energy data. In a few days the more detailed report that goes into projections and probabilities will come out and we’ll share that data at the time.
The public has always expressed their frustration that the decline in the gasoline commodity is slow to be reflected at the pump compared with a rise. With many of the big oil companies missing their earning numbers this quarter, it wouldn’t surprise me if they build in a little lag before cutting the retail price. However at the rate of decline of the underlying commodity, expect what you pay out of your wallet to follow eventually.

If the decline is anything like last year, we’re already hit the top for 2012 and should expect a steady decline especially when the move from the summer to winter blend takes place in the fall.

At Buy and Hedge we’re never big fans of going long commodity ETFs due to the tracking error created by contango, getting short is a different story. For traders out there looking to follow this trend down, consider shorting UGA or ERX (3x) as plays vs going long inverses.


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