Got Gas?

Below we plot the relative performance of Gasoline futures contracts versus Crude Oil futures.  Throughout most of last year the two performed relatively in-line, until the beginning of this year saw an 80% run-up in gasoline prices (as of the 4/30 peak).  Gas is currently up 41.5% for the year while Crude Oil is up 16.3%. 

We noticed a further lack of correlation as Gasoline has started to slow down at the same time Oil has begun to rally.

No posts until Thursday...HAPPY 4th!

Comments

[Paul Teetor]

Thanks for posting this. The crack spread has indeed been acting strangely lately, and investors need to be aware of that.

I think your study has (at least) two limitations. First, you are using the price of West Texas Intermediate (WTI) crude, which has become disconnected from global crude oil prices due to problems at the delivery point, Cushing, Oklahoma. Using Brent oil prices, for example, would give a more meaningful comparison.

Second, your study does not control for refinery utilization. I believe that after controlling for utilization, you will discover that gasoline prices and (global) crude prices are better connected than the simple correlation would indicate.

[Cleve]

Paul:
You make some good points, although I'm not in 100% agreement with you over the difference between the WTI Future and the Brent. The current $4 difference in price is leftover from a selloff in the WTI Future back in March that was not seen in the Brent contracts; however, WTI has rallied more than Brent recently and are nearly in-line (both are continuing to rally).

I agree that it is important to note refining capacity, especially in this country, and often times people miss that point when wondering why gasoline is so expensive. We also thought it would be important to show a period where gasoline prices have come in during a time when crude prices have appreciated.

Thanks for your interest!