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Schork Oil Outlook: Good Gasoline News—But for Whom?

Energy prices were weak yesterday. Turns out that a giant cloud of volcanic ash can put quite the damper on jet fuel demand. On the other side of the Atlantic, the Star Quarterback for Team Bulls has been hit hard. Meanwhile, natural gas was weak and dropped below 4.000; thus it seems having an enormous supply glut doesn’t help prices much either. Who knew?

Natural gas prices on the Nymex were volatile yesterday; the morning saw spot gas rise to within two cents of our 4.099 upper alert. The bulls failed to sustain gains here and prices came crashing down for the rest of the day, bottoming out at 3.902, before support stepped in at our 3.904 inflection low. Whether the bulls will start a run back above the 4.000 psych barrier remains to be seen.

Crude oil prices saw further weakness in the wake of the Goldman scandal. The debilitating ash cloud over Europe probably did not help. The June contract fell past our 83.55 inflection low and straight through our 82.43 intraday before bottoming out around 82.05. Expect increased volatility as the contract for May delivery expires today and the possibility of a short covering rally increases.

Last week saw the release of bullish Consumer Price Index (CPI) figures for the liquids. Total CPI rose by 0.06%, well below the 0.18% average monthly increase seen in the past year. The implication here is that if consumers have to spend less money on other goods, they will spend some part of these savings on gasoline.

The price of gasoline actually fell by 0.82% in urban markets, further fuelling consumer demand. One point of contention was the price of piped natural gas and utilities, which saw a 1.4% increase in March, but this was due to winter demand which will have petered out soon after. For the rest of the economy, the price of food and the price of new and used motor vehicles saw a small 0.2% increase. In a nice contrast, the cost of public transportation rose by 0.7%.

The bottom line is that consumers now, more than ever, have an incentive to fill up their tanks and their garages. In tomorrow’s issue of The Schork Reportwe will be looking at the retail sales figures to see whether these prices have had a noticeable effect.

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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.