Why Speculation Isn’t Pushing Gas Prices Higher

RBOB gasoline futures have been on an impressive rally since early December, with the front month futures contract rising more than 25% in less than three months (81 days) before losing some steam in the last week:

Disclaimer: past performance is not necessarily indicative of future results.

Of course, this has translated into higher prices at gas stations, and when the price of a commodity has a visible, negative impact on ordinary people, the speculator-bashers start coming out of the woodwork, right on cue. We’ve tackled this in the past (repeatedly, and in great detail), but this time we found someone else with a great takedown.

Brett Arends over at Marketwatch sees this speculator bashing as more than just ill-informed – he dubs it a conspiracy theory, which makes sense to us. It’s one of those irrational beliefs that people cling to despite an overwhelming lack of evidence to support their assertions. And Arends goes on to make yet another great point in the never-ending effort to debunk the “evil speculators” conspiracy theory:

The Great Oil Conspiracy is a variation on the age-old rumor that “hoarders” and “middlemen” are holding back oil, food or whatever in order to drive up prices further. These rumors have accompanied every single price spike in human history. For any version of this theory to work, future prices would have to be a lot higher than current ones. No one is going to waste time and money hoarding oil if the price is going to be the same in the future, or lower.

Ahem.

In trading at the CME, the price of a barrel of oil for delivery in April is $91. August: $92. The price of a barrel of oil for delivery in March of next year? Oh, $91. For 2016 the price is as low as $84.

In other words, this grand conspiracy is hoarding oil to drive up the price in order to sell for a higher profit in the future … except that they aren’t actually hoarding any oil, and apparently they are doing this even though they know the oil price is predicted to stay flat for a year, and then fall.

Now, Mr. Arends does fall for a common misconception about futures markets, in that the 2016 price of Oil in the futures markets isn’t where the oil price is predicted to be, it is the 2016 price people are willing to lock in today. Besides that, we thought this was an excellent point, but gas prices and oil prices aren’t always in sync, so we decided to apply it to RBOB gasoline futures, too. And what do you find when you look at prices for settlement dates further out?

Disclaimer: past performance is not necessarily indicative of future results.

When the “greedy speculators” who are supposedly driving up the price of gas to profit on the barrels they have hidden at their secret island lair – aren’t looking to lock in 2016 prices  lower than current prices… well, it doesn’t really add up. Why wouldn’t they just buy up the cheaper further out contracts and lock in those low prices instead of the subterfuge? Although no amount of data is going to convince the dyed-in-the-wool fanatics that there’s no evil cabal of greedy speculators cynically manipulating the market to profit from everyone else’s misery, we at least like to take these opportunities to remind everyone that the data does fall on our side.

Oh… and when prices fall – please don’t forget to thank the speculators.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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