Gasoline Futures Market Rises 45 Cents in 10 Days

EconMatters's picture

By EconMatters

Price Gouging?

Gasoline RBOB futures closes Friday above 40 cents from the price on July 1st which was $2.70 and even reached a high of $3.15 on July 12, without any major news like 5 refiners exploding, a major hurricane demolishing energy infrastructure, or supplies being really scarce. 


Supplies Higher Than Last Year

It isn`t due to real demand as gasoline supplies are actually 221 million barrels in storage versus last year when they were 207 million barrels. And to further point out the absurdity in the gasoline market, RBOB futures prices were $2.71 a year ago at this time. So we have more supplies and higher prices from a year ago. Shoot just a couple of days ago RBOB Futures were $2.86. These moves are ridiculous, and they might make sense if Israel attacked Iran, Unemployment was 2% overnight, the US was using more gasoline than usual by a factor of 10, or there was a shortage of oil.




Less than 1% of Paper Markets Take Delivery

None of these things have occurred and the real ramp in gasoline prices which are going to hit the pump this weekend to the shock of consumers is pure speculators pushing the prices up in paper markets where nobody actually takes delivery of said products. Less than 1% of all energy paper market transactions are ever physically delivered to buyers, and unfortunately for consumers the prices in the physical market are set by the paper/electronic futures markets.



So regardless if JP Morgan has no intention of actually taking physical delivery of gasoline, i.e., they have no use for it as a bank/hedge fund, and as their earning`s point out they make a whole lot of money from running up the paper markets, consumers get stuck with the bill of higher prices at the pump.


Artificial Prices

How do you know these prices are artificial? Easy, do you honestly think there was a massive run on gasoline during the last two weeks? Just look at supply levels versus last year! Look at prices versus last year. It is all a scam by the players involved. Another reason you know prices are artificial is because if the president merely discussed that he was going to release the SPRs to counter higher oil prices, gasoline prices in the RBOB futures market would drop 45 cents in 3 days. If it was true market forces prices would stay high, or only moderate slightly after the threat or release of the SPRs. 




SPR`s Threatened Last Year

How do we know because the very thing happened last year, which by the way was an election year, and the president thought that higher gasoline prices would be harmful to his campaign so he made the threat, and prices dropped like a rock last summer. He didn`t have to actually release any supplies, just the threat made energy prices drop like a rock, i.e., oil dropped over $25 a barrel last summer.

There wasn’t true demand last year, and there sure isn`t true demand this year. Americans basically have been using less gasoline, and trending down the last five years as we are a mature gasoline consuming market with higher fuel efficiency standards, newer vehicles replacing old vehicles, and prices have been relatively high despite the weak economy, so consumers have started using fuel more efficiently, i.e., one large trip to the mall or store versus 5 smaller trips.




I Guess It Was All About the Election

Frankly the president to be consistent (if this wasn`t a political ploy for votes last year like most critics stated at the time) needs to threaten the release of the SPRs next week if he gives a damn about thestruggling middle class in this country. The last thing poor people, citizens on fixed incomes, or just economic growth in general for a 1.8% GDP growth rate economy needs is a 45 cent per gallon tax increase in two weeks.


Criminal Activity?

The fact that a business through the help of the speculators, without any market supply disruptions can get away with this activity ought to be criminal. The general public should be outraged! This is like gouging consumers for batteries and generators during a hurricane, and we have laws against this activity. But yet this crap goes on all the time in the gasoline and oil markets.


Further Reading: Is Inflation really a Problem?

The Reason SPRs Work Is Because It Is All Manipulation to Begin with…

I realize the SPRs weren`t meant to be used to control speculators but it sure works, and has for the last three years. Every time prices spike the president either threatens or actually release the SPRs, and like magic the speculative cockroaches run for the hills, and in the end nobody really wanted the gasoline and oil after all, even at much reduced prices.  



A Rigged Market Requires Governmental Oversight

The oil industry is a monopoly, and consumers rely on the product to go to work, so without government intervention in a rigged market built around speculators with a high utilization of carry trades and QE funds at their disposal, we get a 45 cent price hike in 10 trading days without any supply disruptions.


Take Physical Delivery, Then We Have a Legitimate True Energy Market


There are two solutions: Make everybody who buys or sells a futures contract take or provide delivery, and prices would drop by 50% easily, or when speculation gets out of hand use the SPRs to say enough is enough of this ridiculous price gouging as this is hurting consumers and our economy. So where are you Mr. President Obama? This is where leadership steps up to the plate, not just during election years. 


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robdashu's picture

60 Minutes had an article back in the 70's or '80's about middlemen passing oil around and marking it upon each transaction. They were called "daisy-chain" transactions then. Not a new phenomenon. Probably been happening continuously.

BeetleBailey's picture

Long crack spreads!


oh wait....

lakecity55's picture

I wish we lived on Lone Star Planet.

In this story, all Texans moved (including the Alamo) to a new planet. Politicians could be shot on sight and the shooter acquitted, if he could show the politician lied.

The planet had lots of oil and everyone was carrying.

overmedicatedundersexed's picture

mid east fears are cooling? not in your lifetime - wars and rumor of wars were common in those days.

hootowl's picture

Many of your comparisons are last year to this year, but your article make no mention of the 8 to 10% real inflation factor (per John Williams at that may be driving some of this price increase........and, of course,injurious executive orders, hidden regulatory burdens, new fees, and/or taxes being processed in Obowel Movement's fascist idiocracy.


Clean the air, save oxygen.....exterminate an Elitist today.

The Heart's picture

We used to ask our elders what was the one thing they remember most about the depression. Most of the time the answer would be, "nobody had ANY money."

it is easy to see how these oligarchs and banksters all work together towards the killing of America. These evil things that do this to the poor people who can barely afford to eat now should be put on trial and hanged. It is evil profiteering at a cost of much suffering from the poor and destitute. The whole evil plan is coming together and now, the heat is being turned up for the frogs in the boil of America. All one can do is stay home, build booby traps, and wait for the evil nazi mercenary babylonians to come and get us all. Of course there are other alternatives, but the rising price of gas is going to be really bad for most people. When the whole system crashes, these kinds of ruthless profiteers are going to be first on the nations hit list to go. It is getting closer to house cleaning time. Go ahead babylon, make the first move.


dunce's picture

There is a possibility that obama and his partners in crime are setting up something and tipped their cronies to it for a campaign kick back.

q99x2's picture

Fuel for the revolution.

jomama's picture

you mean to tell us the 'markets' are rigged?!


surfersd's picture

Econ Matters you are pinhead> Irving oil, major US gasoline player had a real problem with their cat cracker(do you know what that is?) Also the train explosion in Quebec caused a glitch in tehir crude supply chain. 

I read your piece about being short crude which is now in your face. Quit the conspiracy crap the energy markets are trading on fundamentals with a bit of fear built in because of the Mid East. It is all well and good to talk a short position, But I would like to see what you would do if something goes boom. 

Put your money where your mouth is go short and show us your confirms when you get out.

As I said he other day, it is a futures market, when inventories ae 15% lower what will you say then?




lunaticfringe's picture

There is always one marooon that drinks the oligarch's kool aid. You probably think gold trades on fundamental supply and demand, too. If you look around and can't find a sucker, it's you. Surfs up, dude. 

otto skorzeny's picture

thanks I needed a good Fri night laugh. actually the huge Mobil refinery in Channahon IL that provides a lot of midwest gas resumed production about 10 days ago after a 2 month maintenance shutdown so that would mean alot of RBOB production from there is back. and a lot of the mideast fears have cooled off quite a bit. also- if that cocksucker bernanke hadn't pumped hundreds of billions in liquidity around the world chasing yield oil would be LUCKY to be in the $50s.

fonzannoon's picture

This has to be about the dollar otto and bernanke. It has to. China is shit, we are going to print a fake gdp that can't even be manipulated to reach 1%. This is another fed induced bubble.

lakecity55's picture

How much does "JIT" play into all this?

Seems like with MBAs making companies keeping low inventories, it would be easier to freak and jack prices.

Having worked in a huge paper mill as a kid, I realize it takes time to get processes ramped up. Whenever these stories come out about rampant speculation, it is best to study that industry first, before making wild claims (excepting politicians).

Kayman's picture

JIT was textbook bullshit. Japanese auto factories forced their suppliers to carry the inventories and it went all the way down the line. Run out of wheel nuts at the factory? No bloody way. Min/max, EOC, using your thumb in the wind, somebody has to carry inventory.

Weyco tried VMI about 7 years ago at their Distribution Centers. Vendor Managed Inventory means you send your inventory to Weyco and they pay you when/if they sell something. Great for Weyco inventory turns and working capital on paper, but eventually you lose all your suppliers.

As to gas/oil. A number of midwest refineries have converted to run dilbit from the Oil Sands because it has been a cheaper feedstock and yields more diesel than the lighter crudes. Diesel has been increasing in demand as gasoline has been falling, relatively speaking.

What we need is Obama to ban all new heavy crude by pipeline into the U.S. This will have 2 helpful effects. One, prices will rise and two, Buffet can fill his trains. (sarc off)

max2205's picture

The general public crawled into their caves in 2009 and have not been seen since.  Count them out of your strategy 

otto skorzeny's picture

fonz- it's all about the Bernank. don't forget that oil up high means all of those fracking and shale jobs keep their #s- so in some perverse way oil at these levels may actually be in the govt 's interest as long as the consumer can keep jamming up their credit cards.  $ velocity is aided slightly from comatose levels with high energy prices.