Gas prices dropping

#9
#9
where are all the doom and gloom chicken littles that were squawking about $5/gallon gas by mid-summer?
 
#10
#10
Odd that while the price of oil was breaking records gas was going down....but yet months ago, we were told they were supposed to mirror each other.
 
#11
#11
CSpindizzy said:
Odd that while the price of oil was breaking records gas was going down....but yet months ago, we were told they were supposed to mirror each other.
Click to expand...

While they are positively correlated, other factors can allow for one to go up while the other goes down. Refining capacity, fuel blend changeover, etc....
 
#13
#13
CSpindizzy said:
Odd that while the price of oil was breaking records gas was going down....but yet months ago, we were told they were supposed to mirror each other.
Click to expand...

there's a lot more political risk built in the oil price compared to the natural gas price.
 
#15
#15
TennTradition said:
While they are positively correlated, other factors can allow for one to go up while the other goes down. Refining capacity, fuel blend changeover, etc....
Click to expand...

BigPapaVol said:
with inventory levels being the ultimate arbiter of pump pricing
Click to expand...

Also projections of future inventories. Once again, the hurricane fear premium that was factored in during the late Spring/early Summer turned out to be over done. Since the hurricane season has not been as volatile as expected, that premium is easing out of inventory projections.
 
#16
#16
volinbham said:
Also projections of future inventories. Once again, the hurricane fear premium that was factored in during the late Spring/early Summer turned out to be over done. Since the hurricane season has not been as volatile as expected, that premium is easing out of inventory projections.
Click to expand...

I'm not sure that I would be easing all of my concern over hurricanes just yet. We are still on pace for an average tropical year based on the storms we have had so far. The activity doesn't really get kicked up until August and September anyway (for the big storms).

I guess that if there was an irrational emphasis placed on tropical storms - then seeing that we are having a "typical" tropical year might reduce those irrational adjustments to more rational ones.
 
#17
#17
TennTradition said:
I'm not sure that I would be easing all of my concern over hurricanes just yet. We are still on pace for an average tropical year based on the storms we have had so far. The activity doesn't really get kicked up until August and September anyway (for the big storms).

I guess that if there was an irrational emphasis placed on tropical storms - then seeing that we are having a "typical" tropical year might reduce those irrational adjustments to more rational ones.
Click to expand...

I wouldn't say the concern is gone but given the vulnerability of refining capacity WRT hurricanes, there is a premium placed on futures prices for gasoline. As months pass (especially peak driving months) and actual events are less than predicted events we see an easing of this premium.

Since this year (like last year) was predicted to be a historically heavy hurricane year, futures prices had this factor built in. Now that inventories survived the critical period and look fine through the end of summer driving season (Labor Day) the impact of hurricanes on the gas supply is generally reduced thus the premium is reduced.
 
#18
#18
volinbham said:
I wouldn't say the concern is gone but given the vulnerability of refining capacity WRT hurricanes, there is a premium placed on futures prices for gasoline. As months pass (especially peak driving months) and actual events are less than predicted events we see an easing of this premium.

Since this year (like last year) was predicted to be a historically heavy hurricane year, futures prices had this factor built in. Now that inventories survived the critical period and look fine through the end of summer driving season (Labor Day) the impact of hurricanes on the gas supply is generally reduced thus the premium is reduced.
Click to expand...

I see what you are saying. I think that the key point may be not so much that this season hasn't been as active (because it is on pace for an average year ... and could still easily be above average), but that they have made it (almost) through their peak season.

I guess what I am getting at is that when the heavy hurriane season prediction is made - the vast majority of those hurricanes are expected from mid August to late September. Granted, it is an easy enough precaution to raise futures when a heavy season prediction is made..not knowing (with certainty) when hurricanes are going to hit. It is true that the gulf would be more likely to be active with tropical systems in the earlier parts of the summer than the atlantic. And, I am assuming this is where most of the concern is - the gulf. However, the systems that are likely to cause the most damage are those that start in the atlantic and make their way (growing) into the gulf ... and perhaps more importantly, later in the season when water temperatures are their highest.
 
#19
#19
TennTradition said:
I see what you are saying. I think that the key point may be not so much that this season hasn't been as active (because it is on pace for an average year ... and could still easily be above average), but that they have made it (almost) through their peak season.

I guess what I am getting at is that when the heavy hurriane season prediction is made - the vast majority of those hurricanes are expected from mid August to late September. Granted, it is an easy enough precaution to raise futures when a heavy season prediction is made..not knowing (with certainty) when hurricanes are going to hit. It is true that the gulf would be more likely to be active with tropical systems in the earlier parts of the summer than the atlantic. And, I am assuming this is where most of the concern is - the gulf. However, the systems that are likely to cause the most damage are those that start in the atlantic and make their way (growing) into the gulf ... and perhaps more importantly, later in the season when water temperatures are their highest.
Click to expand...

I agree but would emphasize that the market pricing factor is based on expectations and actual events. Whether or not the season is average, above average or below average the market begins with initial expectations then adjusts as actual events unfold.

The fact that we have been average so far is actually below early expectations so the adjustment is greater than if they expected average and see average.

The market premium is often about deviation from expectations as much as absolute expectations. If this was an expected light hurricane year, prices would have reflected that earlier in the year. If events unfolded that made it appear we would have an average hurricane year, prices would likely climb since that premium wasn't fully factored into pricing.
 
#20
#20
Here's an article discussing the factors involved.

LubbockOnline.com - Gas prices likely to fall through '07 08/08/07

[FONT=arial,sans-serif]"This year the hype brought the prices up to some extreme numbers and people were worried about a strong hurricane season," Rozell said. "We haven't seen that materialize yet, refineries are coming back online, we have good supplies, so it's all leading to, sort of, a collapse in prices."[/FONT]
Click to expand...

So it is both the deviation from expectations WRT hurricanes and the lessened impact of Fall hurricanes since demand will also fall during that time.
 
#22
#22
volinbham said:
I agree but would emphasize that the market pricing factor is based on expectations and actual events. Whether or not the season is average, above average or below average the market begins with initial expectations then adjusts as actual events unfold.

The fact that we have been average so far is actually below early expectations so the adjustment is greater than if they expected average and see average.

The market premium is often about deviation from expectations as much as absolute expectations. If this was an expected light hurricane year, prices would have reflected that earlier in the year. If events unfolded that made it appear we would have an average hurricane year, prices would likely climb since that premium wasn't fully factored into pricing.
Click to expand...

I dig. Everything that you said about deviation from expectation makes perfect sense.

I guess coming from the meterology side of things...a huge season at this point would only be about 5 named storms in the gulf and atlantic. That would be twice the average at this time, roughly. So, while 3 named storms may be only average..the difference is just 2 named storms. I am suprised that would make such a difference.
 
#23
#23
#24
#24
Here we go again.

Check this story - new predictions about hurricanes and the market shifts.

Energy Futures Waver on Storm Forecast - Forbes.com

This is the crazy thing about markets - it's all about expectations and the corresponding events. Analysts could predict that a company is going to loss $1 billion in the next quarter. If the company only loses $.8 billion then their stock will likely rise. On the flip side, a company projected to earn $1 billion will see its stock drop if it only earns $.8 billion.
 
#25
#25
TennTradition said:
Last season certainly played out to be a very quiet year compared to early predictions. Did we see similarly large drops in prices - or were we still battling Katrina capacity?
Click to expand...

Yes they fell - here's an article from last Fall.

Gas prices fall to lowest level in '06, average $2.226 a gallon last week - USATODAY.com

They remained high all year amid soaring crude-oil prices, tight refining capacity and fears that there would be another extreme hurricane season this summer.
But as the outlook for economic growth began to look shaky, supplies grew and hurricane fears never materialized, a massive sell-off in gasoline futures began, sending oil futures lower as well.
Click to expand...
 
New posts
You must log in or register to reply here.

VN Store



Back
Top