Watch out for the gasoline 'wild card': Trader
Gasoline is showing quite a bit of strength, in the wake of the bearish supply numbers that we've seen recently.
The API numbers showed a build of 2.6 million barrels, and the EIA number that was released on Wednesday morning showed an even bigger build of 3.1 million barrels. So if we are showing a build in supply, why the strength?
There are a few factors—and while each is small, when put together, they spell out near-term supply problems for gasoline.
Refiners have had a few snags in getting supply out, with maintenance issues, unplanned shutdowns and problems with pipelines being the most visible. That is coupled with an increase in demand, which is because of the driving season and a slowly improving economy. Put this together, and the supply and demand picture is giving us a recipe for higher prices.
(Read more: Gasoline at the pump still rising but peak in sight)
The good news is that in a few weeks, the market will realize that we will have enough supply to meet demand, just as the summer driving season is winding down. This will cool off the market, but the wild card after that will be hurricane season.
Most of the nation's refiners are concentrated in two places: the Gulf and the Midwest. The Midwest is safe from hurricane impact, but as we have seen in the not-so-distant past, the Gulf is not.
So while it's hard to predict what will happen, traders will certainly position themselves to take advantage of any spike in prices that might occur if storms head toward Texas and or Louisiana. To put it more simply, traders will get long so that they can profit from a potential hurricane.
I am still looking to buy dips in the gasoline market, with $3.08 to $3.10 as my target of entry. And I'm still looking to take profits between $3.20 and $3.25.