Gasoline futures plunged 4 percent to below $2.50 a gallon Monday morning, a slide that could signal good news for drivers over the Thanksgiving weekend.
The national average for unleaded gasoline is $3.42 a gallon, according to AAA. A $.10 drop in futures so far today should translate into a $.10 drop in pump prices, says energy analyst Andy Lipow.
A decline to around $3.30 a gallon would bring retail gasoline prices to levels not seen since February. "Gas prices will definitely be lower this Thanksgiving," agrees OPIS analyst Tom Kloza, "but don't think these prices are what you'll see in March, April and May,"
What's behind the recent slide?
Gasoline prices are often battered at this time of year. "Gasoline demand is usually weakest in the fourth quarter. I'm not surprised to see gasoline prices are getting hit, especially because diesel and jet fuel exports are keeping heating oil strong," says trader Anthony Grisanti of GRZ Energy. NYMEX heating oil futures are often traded as a proxy for distillate fuels, including diesel and jet fuel, in U.S. markets.
Over the last few weeks, the supply and demand dynamics have become much more attractive for heating oil and other distillate fuels. Total U.S. distillate fuel supplies are 15 percent lower than this time last year, while demand has been rising. Meanwhile gasoline demand is down and gasoline supplies are higher than a year ago.
The result: Traders are buying heating oil (often, the seasonal favorite) and selling gasoline. The latest CFTC data, for the week ended November 8, shows money managers were liquidating long positions in gasoline and buying long positions in heating oil at almost the same rate.
Still, some traders and analysts say today's sharp slide may reflect "panic" selling, not just seasonal trading. The spread between heating oil and gasoline futures is at levels not seen since the financial crisis in 2008 and the RBOB gasoline crack (the value of front-month gasoline vs. U.S. crude oil futures) has slid more than 50 percent in the past week.
"This is a more violent move than I can recall recently. It's interesting how much prices have moved since last Monday, when the MF Global debacle really started to affect traders," says energy trader Michael Theesfeld. "I'm hearing stories of guys stuck with positions on that are forced to liquidate in a high volatility, low volume environment."