Why This Chart Is Bad News for Gasoline Bulls
Peanut butter and jelly. Bert and Ernie. And gasoline and crude oil.
Some things just belong together.
But lately, that last pair have split up, at least in the short-term. Over the past month, crude oil has dropped while gasoline has rallied.
(Read More: Dollar Strength Blamed for Crude Oil Reversal)
Now the difference between gasoline and crude oil prices actually has a name – it is known to traders as the "crack spread," because it indicates how much money gasoline refiners can make by "cracking" crude oil. But since you need one to make the other, how has the divergence between the two gotten so wide?
"It's not a demand issue, it's a supply issue," explains Anthony Grisanti of GRZ Energy. "You have seen a lot of refinery problems because of Hurricane Sandy, so gasoline never got a chance to drop in the fourth quarter like it usually does."
(Read More: Oil Pares Gains on Bearish Supply Data)
As Grisanti sees it, while gasoline has dropped from $98 as geopolitical issues have cleared away, gasoline prices have continued to be driven refining issues — though he thinks that will turn around.
"I that think eventually the spread will narrow," Grisanti says. "Once refineries do start to produce gasoline, you might see a spike in demand, and that should be supportive for crude oil."
Tim Evans, energy futures specialist at Citi Futures, agrees that the strength in gasoline prices is temporary. "What I see here," Evans explains, "is high gasoline prices based on the current cycle of refinery maintenance."
(Watch: What Is a Futures Contract?)
