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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Vendit™ who wrote (2615)	12/11/2004 9:45:59 PM
From: Walkingshadow	Read Replies (1) \| Respond to of 8752

Hi Reid, Basically I'd say the price of gasoline has been slowly falling because oil has been rapidly falling. The chart of the oil futures suggests that the current strong uptrend may well be in jeopardy, but this remains to be seen: futuresource.com You can see that last week an important support level was broken. The chart for heating oil looks similar, but not as bearish. A number of the OPEC nations habitually cheat. Everybody knows this, but nobody makes a big deal about it because it doesn't really affect things much, and nobody gets confrontational with OPEC. Also, OPEC some time ago began to take a less Stalinist approach, realizing that some countries need to adjust things a bit to suit their changing needs. OPEC has become rather mature in its approach, I think. A kinder, gentler OPEC, as it were. I was floored by the price of gasoline in Iraq, which is several orders of magnitude less than that here (or anywhere else). THAT is something I would like to know more about... Regarding gasoline, my feeling is that the reported "average" price is virtually always considerably less than any gasoline I have ever bought anywhere, anytime. I also suspect that the price of gasoline rises very quickly when oil rises, and by roughly the same percentage. But on the downside, this relationship is different: if oil drops say 10%, then gasoline can be anticipated to drop far less than that (maybe 2 or 3%), and it does so rather slowly, kind of drifting down. One of these days I am going to actually collect some real-life data on this from my real-life local gas station. Maybe I'll sample from 3 or 4 gas stations. I don't think it will make much difference. I know you have been noticing dropping gasoline prices, but out here I have not seen that. There has been only a rather modest drop here. I'd say the average price here is roughly $2.20 for regular, and I highly doubt you could find gasoline anywhere in the county for less than $2/gal. Probably the range is something like $2.05 to $2.60/gal for regular. Here is the chart for unleaded gasoline futures. In my view, this reflects only the wholesale price fluctuations, not the retail price fluctuations. Again, I think retail price volatility is considerably more attenuated on the downside than on the upside relative to either oil futures or unleaded gasoline futures. Remember that one of the main purposes of futures in the first place is to limit downside risk on the part of producers, not consumers. futuresource.com You can see from this chart that unleaded gasoline futures have fallen over 25% in the last 6 weeks. I am quite sure the drop in gasoline here is nothing close to that. A 25% drop would mean gasoline should be retailing at about $1.60/gal or so here. Notice the absolute value of the futures contracts: far less than $2, actually hovering just above $1 now. Again, I suspect this reflects the wholesale market forces, not the retail market forces. If you think about it, this is consistent with the fact that the relevant sectors and individual companies have done extremely well for some time now (in terms of revenues, margins, EPS, etc.). This could not be if everytime the price of oil fell, they dropped the price of gasoline by the same amount, because that would mean all downside movement in oil would be accompanied by reduced margins. And I see no evidence of that, nor do I think good businessmen who are trying to make a profit would allow it to happen if they could prevent it (they can and do). So bottom line, I don't think overproduction or increased reserves brings gasoline prices down much, but it probably DOES have an overall favorable effect on inflation. Conversely, my feeling is that increasing oil prices have a marked inflationary effect on the economy, including at the level of producer and consumer. I realize neither the CPI nor PPI has admitted to this (yet), but again, I don't think those figures are nearly as reflective of reality as most people assume. The economic realities take quite a while (6-9 months) for their full effects to be felt, so it is quite easy to understate the effects and get away with it. I am not saying anybody is intentionally lying, but... well, statistics can be used in many ways. The devil can quote both scripture AND statistics to his purpose. Administrations naturally want to believe they are making things better, and tend to look less diligently for evidence that this is not so, and look more diligently for evidence that it is. This has nothing to do with republicans or democrats, everything to do with human nature and the inherent and largely unrecognized biases therein, coupled with the often honest desire to make things better. ....JMVHO..... Terry