Gas prices dropping

#27
#27
I haven't done the research but I would guess that our experience with Katrina put some extra ooomph in the hurricane expectation premium.

The prices are all supply and demand. Katrina and a busy storm season showed how much the supply part of the equation can be impacted.

Given the nature of the beast, we will continue to face significant summer spikes in gas prices - the supply demand equation gets stressed the most since demand is peaking, supply is tightened due to switch overs from winter to summer blends and we appear to be in a cycle of heavy storm activity (at least prediction-wise).

Some regulatory change to reduce the number of blends for different states would help ease the supply side of things.
 
#31
#31
g8terh8ter_eric said:
WTH does storm forecasts have to with gas prices?? I love the scare tactics used to drive prices up and down.
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Storms can disrupt the supply since so much of it resides on the Gulf coast.

Investors basically factor in the risk. They are attempting to predict what gas prices might be in the future based on projected supply/demand scenarios.
 
#32
#32
volinbham said:
Storms can disrupt the supply since so much of it resides on the Gulf coast.

Investors basically factor in the risk. They are attempting to predict what gas prices might be in the future based on projected supply/demand scenarios.
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I don't think we have had a storm yet this year and the Hurricane Prediction Center has revised it prediction 3 times already. This went from being the "worst season ever because of global warming" to "this season isn't expected to be quite like we first thought because of abnormal cool ocean surface temperatures". So keeping people scared keeps the price up, and when they feel safe the price goes down. Also, when they can accurately predict storms within a two week window then that rationale might work with me. They can't even tell you exactly where its going until its about 5 hours or less from the point they started at. They even have 6 computer models they use and basically take the average of those 6 to determine a storm path.
 
#33
#33
g8terh8ter_eric said:
I don't think we have had a storm yet this year and the Hurricane Prediction Center has revised it prediction 3 times already. This went from being the "worst season ever because of global warming" to "this season isn't expected to be quite like we first thought because of abnormal cool ocean surface temperatures". So keeping people scared keeps the price up, and when they feel safe the price goes down. Also, when they can accurately predict storms within a two week window then that rationale might work with me. They can't even tell you exactly where its going until its about 5 hours or less from the point they started at. They even have 6 computer models they use and basically take the average of those 6 to determine a storm path.
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I'm not sure that I agree with your entire assesment of this season's hurricane predictions. Can you provide links detailing the "worst season ever" and "abnormally cool ocean surface temperature" reports? I would be suprised that any climate scientist would claim that more tropical systems would result from global warming (intensity is a whole other matter). Ocean temperatures certainly play a role..I would like to see an article that details the report you refer to.

All in all, hurricane prediction (and other tropical systems) is extremely difficult. Once a system forms, tracking is getting a lot better. But, prediction a priori is verhy difficult and Dr. Bill Gray has done a pretty good job at developing a model that has some success. But, like any model, it has uncertainty in its inputs - and as those inputs become more certain (such as ocean temperature, African continental rainfall, etc.), the model is surely going to change its predictions.

Uncertainty is a huge factor in science and there is always conflicting data. Science is often about sorting through these apparent inconsistencies to gain a better estimation of the degree of uncertainty in inputs or outputs of forecasts/models.
 
#34
#34
g8terh8ter_eric said:
I don't think we have had a storm yet this year and the Hurricane Prediction Center has revised it prediction 3 times already. This went from being the "worst season ever because of global warming" to "this season isn't expected to be quite like we first thought because of abnormal cool ocean surface temperatures". So keeping people scared keeps the price up, and when they feel safe the price goes down. Also, when they can accurately predict storms within a two week window then that rationale might work with me. They can't even tell you exactly where its going until its about 5 hours or less from the point they started at. They even have 6 computer models they use and basically take the average of those 6 to determine a storm path.
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And...we've had three named storms..on pace for an average year. (which does disagree with Gray's forecast of above normal). However, an above normal pace at this point would be 5 storms. I guarantee you that the standard deviation for an "average" tropical year is more than plus/minus two storms.
 
#35
#35
I doubt the hurricane forecasters have any agenda with regard to gas prices. Investors make decisions based on best available data - in this case predictions. When those data change, the market shifts. No conspiracy just the market mechanism.
 
#36
#36
I was also under the impression that we are thought to be in a multi-year cycle of heavy hurricane activity like the late 60's and 70's. I would imagine that factors into to predictions about the severity of any upcoming hurricane season.
 
#38
#38
Looking out my window. I am about to pay 2.59 a gal for regular. :yess:
 
#42
#42
"Looking out my window. I am about to pay 2.59 a gal for regular."

"Do you live in a loft over a garage at an old gas station?"

Now thats funny!!!
 
#43
#43
We just picked up two new storms, which puts us at 5 for the year - above average. This figure shows how things don't ramp up until early to mid-august and then start slowing down in mid-september. It is hard to judge how much activity a season will see until this period. The next few weeks will be very telling.

Atlantic Basin Storms.jpg
 
#45
#45
And yet more hurricane forecast impact:

Oil, Gas Prices Fall on Storm Forecast - Forbes.com

NEW YORK -

Energy futures retreated from earlier highs on Monday as a revised forecast predicted a tropical storm will turn away from the Gulf of Mexico, and as several refinery problems turned out not to be as bad as initially thought.
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Tropical Depression Four, located in the central Atlantic Ocean, is strengthening and bearing down on the Caribbean Sea. But forecasters now believe the storm will swing north toward the Eastern Seaboard and away from the Gulf.
"This Tropical Depression Four doesn't seem to be as big a deal," as once thought, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.
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#46
#46
But wait, there's more!

Oil prices rise near US$73 a barrel on storm worries - International Herald Tribune

Oil prices rose Wednesday on concerns over storms in the Atlantic Ocean and the potential impact they may have on the Gulf of Mexico, where oil and gas companies have significant production, refining and oil terminal operations.
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"Oil prices picked up over the path that the tropical storm would take. There's projections for the path to go through various bits of oil infrastructure in the Gulf of Mexico so that's worried the market a bit," said Tobin Gorey, commodity strategist at the Commonwealth Bank of Australia in Sydney.
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#47
#47
This was my whole point about futures the other day. It is ridiculous to drop futures on the basis that the hurricane season hasn't been as bad as expected when in fact that was a false conclusion to draw. I'm not saying that it is going to be a horrible season now that we have 5 named storms, which is above average - but I am saying that mid-august to mid-september is when we will see the most activity. To say that a season just isn't what we thought it would be before that period is just not understanding history or science (or statistics either - standard deviations).

I will also add, though, that I understand how a lack of early season storms could allow oil futures to fall because much of the oil that will be required to meet pre-labor day demand has already been drilled and sent to refineries (I presume). This aspect makes sense. However, many of the journalists stated that it was due to a slower season than predicted, which is really inaccurate in my opinion. I just can't help but see a lot of this maneuvering as over-reaction ... or somewhat of a "search" for something to react to. It really seems like a bastardization of science to me...
 
#48
#48
I think we have a macro/micro thing going (for lack of a better term).

In late Spring prior to any knowledge about actual hurricanes, the market may overweigh the potential impact of hurricanes based on the long-range forecast. This is particularly true if inventories are tight. Since the forecast is for a season and inventories during the season are unknown, the risk premium is probably larger and more stable day-to-day. No actual evidence exists to change the premium.

What we see know are micro/short-term fluctuations based on predictions closer to actual events. The inventory issue has eased through the heavy demand period so the risk associated with hurricane impact on supply is lessened. While the market likely understands most hurricanes occur later, each time when inventory is tight yet a storm doesn't hit the risk drops. The market's not saying it will be a light season. It is saying the impact on inventories is lessened each week/month we go with out a hit.

The current daily swings are still driven by changes in predictions but those swings are smaller in magnitude and more frequent.

Put another way, markets follow a logic - just not the same logic that a hurricane forecaster uses.
 
#49
#49
TennTradition said:
I just can't help but see a lot of this maneuvering as over-reaction ... or somewhat of a "search" for something to react to. It really seems like a bastardization of science to me...
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It's a function of how the information is factored in. If anything my and the journalists wording might be off. The market is looking at the potential effect of hurricanes on supply and demand. They are reacting to the change in the perceived impact not the perceived likelihood of hurricanes in general.

Also, an above average year doesn't matter as much if it is still less active (to date) than predicted. The market is an ongoing recalculation of expectations vs. actual events.
 
#50
#50
volinbham said:
I think you have a macro/micro thing going (for lack of a better term).

In late Spring prior to any knowledge about actual hurricanes, the market may overweigh the potential impact of hurricanes based on the long-range forecast. This is particularly true if inventories are tight. Since the forecast is for a season and inventories during the season are unknown, the risk premium is probably larger and more stable day-to-day. No actual evidence exists to change the premium.

What we see know are micro/short-term fluctuations based on predictions closer to actual events. The inventory issue has eased through the heavy demand period so the risk associated with hurricane impact on supply is lessened. While the market likely understands most hurricanes occur later, each time when inventory is tight yet a storm doesn't hit the risk drops. The market's not saying it will be a light season. It is saying the impact on inventories is lessened each week/month we go with out a hit.

The current daily swings in still are driven by changes in predictions but those swings are smaller in magnitude and more frequent.

Put another way, markets follow a logic - just not the same logic that a hurricane forecaster uses.
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I think that your micro/macro explanation makes a lot of sense. I think that more of my problem is with the journalists who stated that "because of a less intense hurricane season than expected..." than it is with the market. The market do what the market do, baby :). I hate the over-simplified descriptions we typically get.
 
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