Brent/WTI Spread Narrows to $15, Gas Drops

In a rare Monday where volatility was light and nothing much happened, Brent crude futures was off $2.05 to $118.43 per barrel.  Brent is in a bearish stance right now so the drop is not surprising.  What was surprising is that West Texas Intermediate crude was up slightly to $103.53 per barrel bringing the WTI/Brent spread to near $15 after widening out to $21 per barrel on April 3rd.

Since then, the price of gasoline futures have dropped from their high closing price of $3.406 per gallon to today’s close of $3.264, off $0.08 on Monday.  While the gasoline futures price has dropped 4.2% since that day the futures curve farther out in time has compressed significantly, with the difference between the front month and the January 14 contract price compressing $0.09 per gallon from $-0.54 to -0.45 per gallon.  Again, I stress that while the futures market is pricing in lower gas prices that curve is flattening, meaning traders are expecting relatively higher prices than they did just 2 weeks ago.

The headline is that the retail sales number has consumers unperturbed by high gas prices.  But, gasoline usage is at a multi-decade low so retail sales are not being driven by gas prices, or the other way around.  Seriously, does anyone spend their time going to the mall to go shopping anymore in middle-class America?  Seriously?  Retail sales may be up for whatever reason and that’s fine.  But I’m not buying (all puns intended) that high gas prices aren’t having a depressing effect on certain economic activities.  That’s just plain nonsense.

 

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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