Yesterday’s 30.8 cent plunge (peak-to-trough) in Nymex gasoline almost seemed normal.
As if a $13 a barrel move is substantial.
After all, the market dropped by more than $11 a barrel last Thursday, and by almost $15 a barrel the following session. Then on Monday and Tuesday of this week the market rallied by $13.50 and near $12, respectively.
This is insane. These numbers would have been inconceivable just a few years ago. Put it this way, if you had the dumb luck to have bought the lows and sold the highs over the last five sessions, your P&L would be up by $64,722 for each lot!
If that is not irrational enough, at one point yesterday the spot gasoline crack was down by more than $7.50 a barrel. There used to be day, again, not too long ago, when the Nymex gasoline crack would trade at $7.50.
Give Wall Street another year at this market and $7.50 a barrel might just end up being a rounding error.
To this effect, per last Friday’s CoT report from the CFTC, Wall Street’s best-and-brightest [sic] owned 2½× the amount of gasoline sitting in PADD IB (inclusive of the Nymex delivery hub). As discussed in yesterday’s issue of The Schork Report, gasoline supplies in the East are low. That’s a given at this point. Be that as it may, the eggheads on Wall Street still own 2× the 10-year average of PADD IB stocks.
Never mind that up until about last week, the East Coast crack (NYH conventional gasoline against Brent) was yielding well, well below the 10-year average. In this vein, how concerned was the market in regard to the supply of mogas?
Bottom line, gasoline supplies are well below normal for this point in the season, but thanks to $4 at the pump, so too is demand.
So where are prices going from here?
It’s a crap shoot. We have become inured to the dizzying level of volatility. Don’t get us wrong, fast markets are fun to trade… as long as you keep your volume low and your stops tight, real tight. And, that is exactly what we are advising our clients.
Thus, heed the words of Sgt. Esterahaus… be careful out there!
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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.