So much for $5 gasoline

Oil prices have hit the lowest level in the last six months, the Associated Press is reporting today.

Just one question: What’s taking you so long to get in step, gasoline prices?

The price of gasoline is not directly and immediately tied to the price of crude — there are plenty of variables in what makes up the cost of a gallon of gasoline — but it’s relatively unusual to have a steep drop in oil in the last few weeks and have gasoline prices still trending in a fairly narrow range.

Twin Cities Historical Gas Price Charts Provided by GasBuddy.com

So much for the $5 gasoline panic, writes Phil Flynn on Inside Futures:


Flynn takes the gamblers’ reversal of fortune as, “more proof that whenever somebody blames the speculators for the prices [of energy], they really don’t know what they’re talking about.” Assuming the speculators aren’t about to get credit for any decline in crude prices, Flynn says the fundamentals are to blame for the recent sharp decline. Newly Socialist France and the lunacy in Greece are creating uncertainty that weakens demand. In combination with the glut of oil, stockpiled when a military stand-off with Iran seemed inevitable, the price of crude and other forms of energy are dropping due to the laws of economics. Unless Europe is “solved,” which is unlikely if not impossible, or a hot war breaks out in the Middle East, Flynn says “sell the rallies” is the dominant strategy. To him the only real question is whether or not a trader should go so far as to short crude or natural gas. With the fast drop below $100 a barrel in WTI crude, Flynn says its new price range is likely to be somewhere between $90 and $95 a barrel, causing him to “be a little careful” going short. For every buyer there’s a seller, meaning someone is most likely making money off the drop in energy prices. Whether it’s a new breed of speculators driving it lower or the obviously bearish fundamentals is beside the point for a trade. Until further notice, the best way to play crude has gone from “buy the dips” to “sell the rips.”

As recently as last Friday I told Tracy Burns and Ashley Webster on the Fox Business Network that oil had not bottomed and was probably on its way to 90. We are already close!