Evidence continues to mount that 2019 represented the peak for U.S. gasoline demand as a slow decline in 2024 retail volumes was noted.
There was a definite yin and yang of the retail gasoline markets to the recently completed summer driving season. That is while demand continues to struggle and the margins do not. As a result, it proved to be a profitable summer for retailers.
The argument that “40cts is the new 20cts” when it comes to gross rack-to-retail margins got another check mark as the summer average margin was 42.9cts/gal, according to OPIS data. All three months were comfortably above the 40cts/gal mark as well with June averaging 43.8cts, July 41.1cts and August 42.7cts.
It is also likely that those with scale and that are highly ratable would have exceeded that average. Those with size and scale can also absorb the loss of volumes much better than the smaller chains and “mom and pop” retail sites.
Average summer margins in 2024 were almost 50% higher than the 2019 average, so while demand goes down margins go up and that has been the case over the past few years.
While that is the good news, the bad news is that same-store sales are declining. It may not be that Americans are driving less. In fact, it’s the contrary. Vehicle miles traveled according to the Federal Highway Administration are ahead of 2019 on a year-to-date basis.
Data from the FHA from January through July 2024 shows that, minus small hiccups in January and again in June, growth in vehicle miles traveled is running ahead of 2023. On a year-to-date basis, through July, VMTs are just inside of 1.9 billion, representing a roughly 2% increase from 2023. The 2024 figures through July also represent a 1% increase from 2019.
So with vehicle miles traveled up and gasoline demand down, that points to a few factors.
The first and most important is vehicle efficiency, which continues to grow. Based on the most recent data from the EPA the preliminary real-world miles per gallon averages just shy of 27 miles per gallon, while 10 years ago it was just over 24 miles per gallon.
Some of the best strides have been in the pickup truck. Pickup trucks are amongst some of the most popular models in the U.S. and over the past 10 years, efficiency has grown by almost 20% to nearly 21 miles per gallon based on the 2023 preliminary EPA data.
Based on OPIS summer driving season data, U.S. retail stations sold 68,141 gallons per month during the three-month period. Of the three months, June and August were above 68,000 gallons and comparable to one another, while July was a bit of a laggard averaging just over 67,600 gallons.
2024’s rendition of the summer driving season based on same-store sales was down just over 3,200 gallons versus 2023 or about 4.5%. However, when compared with 2019, the loss in volume is eye-popping, dropping by more than 20,000 gallons or 24%.
When it comes to profitability though, margins more than made up for the softening demand.
While the combination of volume and average margin in 2023 made retail station profitability on par with 2019, 2024 blew both years out of the water thanks to the stronger gross rack-to-retail margin.
Based on OPIS data, the average profit for a site per month was $29,237 during the summer 2024 driving season. That is more than $3,000 per month more than in the summer of 2023 ($25,691) and 2019 ($25,754). The most recent summer driving season saw profitability rise by more than 13% when compared to the other two years.
Regional Roundup
All the regions OPIS tracks directionally matched the national trend, with higher margins but lower volumes.
Perhaps most concerning is how much same store sales are down from 2019, the peak of gasoline demand. Regional volumes versus 2019 are down by anywhere from 20-30% during the 2024 season. Year-on-year gasoline demand was off anywhere in the 4-5% area for the various regions.
As is normally the case, the West has the strongest margins in the country as the summer 2024 gross rack-to-retail margin at 67cts/gal, with the Northeast at a distant second averaging 42.7cts/gal.
The prevailing theory is that stronger gasoline margins are enough to offset lost gallons and lead to continued station profitability. Generally, that theory is correct, but in a few parts of the country, that is not necessarily the case.
In the West, the summer of 2024 saw the average station produce $54,496/month in profits. However, with station volumes down some 30%, a nearly 40% increase in margins was not enough to continue the upward trend in station profitability as the same metric in 2019 was $56,507/month. Overall in the West, station profitability was down by 3.6%.
Of all the regions, the West has also seen the sharpest decline in same store sales since 2019, at just over 30%.
Another example that goes against the prevailing notion is the changes in the Southeast from summer driving season 2023 to driving season 2024.
Station profitability this summer was largely flat at an average of $21,280 per month, down just $16 from 2023.
Like everywhere else, demand was down and margins where higher, but margins were not high enough in the summer driving months to offset the lost gallons. Average monthly volumes came in at 60,671 gallons, down just inside of 5%. Meanwhile, margins grew to 35.1cts/gal, an increase from last year of just over 5%.
These mostly flat movements in the Southeast present a potential argument that from a percentage standpoint, margins may have to grow a couple of percentage points more than volume losses to keep station profitability rising.
The above theory potentially shows in the 2024 versus 2019 comparisons for station profitability. Same store sales are down 23%, but margins are up 64%. As a result, station profitability is up 26.6% in the Southeast.
Major League Baseball playoff races are heating up and the importance of the offensive “big inning” is magnified in August and early September. It is also the time when marketers and gasoline retailers see some of the best margins of the calendar year.
Gross rack-to-retail margins over the course of this decade have started to grow and in some periods of the year quite significantly. The firming of margins over time has brought the axiom “40 cents is the new 20 cents.” Between 2014 and 2019, annual gross rack-to-retail margins averaged from about 22-24cts/gal, but that has all changed over the past five years.
Over time, retail gasoline margins tend to be unremarkable. Investors accustomed to quarterly reports that tout 20% to 40% gross margins for technology firms don’t get excited by the very limited returns on wholesale gasoline prices. However, the margin environment has been getting more attention of late and not only does it capture investors eyes, but also refiners and oil majors that left the retail side of the business some 20 years ago have become more involved through joint ventures.
Before 2020, profit margins on retail gasoline would barely crack 10%, more recently it is common to see that percentage rise to nearly 15% of the price of gasoline.
There are several theories as to why retail gasoline margins are on the rise, stemming from M&A activity over the years putting more stations in fewer hands, to increased labor costs and the current high interest rate environment in the United States. Market volatility is also playing a significant role as several global events have impacted margins whether that was the COVID-19 pandemic in 2020 or the Russian invasion of Ukraine in 2022, petroleum markets from futures down to rack have become much more volatile. Large swings in prices can have a massive impact on retail gasoline margins, more on that in a bit.
Typically the strongest margins come in the second half of the year when retail prices have a tendency to drop. Over the past 10 years from 2014-2023, eight times the best monthly average margin came in either the 3rd (3x) or 4th (5x) quarter. The strong autumn performance underscores one of the great myths of the U.S. gasoline business. Consumers tend to believe that gasoline retailers prosper when street prices rise, and conversely empathize with station operators as prices decline.
But the inverse is generally true. Wholesale gasoline prices have a tendency to drop late in the late summer and early fall and some of that can be attributed to a shift in the gasoline formulation from low RVP summer grade gasoline to high RVP winter grade gasoline.
The step down in prices at least in the futures market has been quite substantial.
Over the past five years, the average spread going from September to October RBOB futures averaged a 16cts/gal step-down in prices. The drop in price from September futures to October futures though in the past two years has been in excess to 20cts/gal. Currently, the spread between the two months contracts has been running about 18-19cts/gal, still above average but 3-4cts softer than the previous two years.
The excessive spread between the end of the 3rd quarter and start of the 4th quarter contacts in 2022 and 2023 are largely explained by the relatively low gasoline supplies compared to previous years.
It is not just in the futures markets, but also in spot markets where some of the higher RVPs begin to become the tradeable spec sometime in mid-September (depending on the market).
For example, in 2022 the higher RVP RBOB in the New York Harbor ushered in about an 8cts. In 2022, however, from September 15 to 18, 2023, spot prices dropped by 21cts. That was quickly reflected in Northeast gross rack-to-retail margins which, on September 15, were 31.4cts/gal, but just six days later the gross margin had grown by nearly 70% to 52.8cts/gal.
Sometimes market circumstances demand government action. California does not see the transition to high RVP gasoline until late October. But in each of the past two years because of refinery downtime and other markets no longer making low RVP gasoline that would meet California specifications making resupply difficult, action was taken to relax RVP standards a few weeks before normal.
In 2023, L.A. CARBOB was pricing almost $1.50/gal over futures and San Francisco about $1.10 on September 28, 2023, but after the RVP waiver was issued, premiums fell by almost $1 in L.A. gross margins in California reacted swiftly more than doubling from 58cts/gal on September 28th to $1.69/gal just a few days later.
2023 was just “deja vu all over again” when compared to 2022. On October 3, 2022, L.A and San Francisco gasoline were pricing at more than $2 over futures, but two days later after the government stepped in, waiving RVP requirements, the market saw about $1.50 cut off those premiums to around 50cts over futures. Rack to retail margins, you guessed it, nearly tripled over the course of five days from 43.6cts/gal on October 1 to $1.54/gal on October 6, 2023.
Those are just a few examples how the fall RVP shift can have a massive impact on gross margins for gasoline retailers and further evidence that the best time of year for the gross rack-to-retail margin usually lands in the last third of the year.
May can be a Jekyll and Hyde type of month when it comes to gross rack-to-retail margins, but the 2024 rendition is certainly the version that downstream marketers would like to see on a regular basis.
Based on the latest OPIS data, the average gross margin for the month of May came in at 45.9 cents per gallon. The May average margin was the strongest one-month average since November 2023 and it was easily the strongest May on record, as no other May has come close. Over the past 10 years (including 2024) the average margin for May was around 26.5 cents per gallon.
Although June is just getting started, the early returns for margins show a similar trajectory for this month, though that can change quickly, considering the volatility in markets.
The month of May certainly experienced some volatility in the average gross margin, but it was from a higher level. During the month, the daily U.S. gross margin averaged anywhere from a low of 33.4 cents per gallon at mid-month, and the high of 53.8 cents came on the last day of May.
Gasoline futures markets, as well as several spot markets, made the strong margins somewhat easy to predict.
The highest gasoline futures settlement of May was on the 2nd at $2.5965 per gallon, but by May 30th the futures market had tumbled by more than 19 cents per gallon, settling at $2.4046 per gallon.
Futures markets only tell part of the story that contributed to a strong gross margin environment as spot prices in several markets exceeded the decline seen on the paper side.
At the beginning of May, Los Angeles CARBOB was pricing around $2.825 per gallon, with San Francisco at $3.015 per gallon, OPIS spot market data shows. But by the end of the month, L.A. gasoline was almost 40 cents cheaper at $2.4275 per gallon with San Francisco more than 50 cents cheaper ending the month at $2.4975 per gallon.
That move, as you may have guessed, supercharged margins throughout the month. The California average gross margin started May at 73.2 cents but ended just shy of 92 cents, with the average gross margin about 6 cents below the highs at 86.2 cents.
A strong margin environment is necessary to make up for lost gallons as same-store sales are down compared to the previous year, based on OPIS monthly gasoline demand data.
With the summer driving season officially underway, retailers will be looking for some positives, and there are some if you happen to be a “glass half full” person.
2024 started the year with very soft gasoline demand, with January running almost 7% below January 2023. However, January is typically the softest month of the year when it comes to gasoline consumption. Since January, the deficits to 2023 have been narrowing.
Though month-to-month volumes are getting some traction, same-store sales versus 2023 are still looking soft. Final May gasoline demand was about 4.2% below May 2023, but if you are looking for the positive, the year-on-year trend is narrowing as the month of May saw the smallest loss in volume compared to a year ago. In fact, May was the smallest year-on-year loss since August 2023.
The monthly improvements are seen in most individual regions.
The heavily populated Northeast region has been consistent in its declines versus 2023 over the past three months with year-on-year declines in the 4.6-4.8% range versus 2023. While the Northeast sees the steady demand drops versus a year ago, the Mid-Continent sees a bit wider same-store sales losses on either side of 5% down.
Southwest is turning in the strongest demand with May running just 2.4% behind 2023. Other than in January when weather was poor, Southwest gasoline demand saw the largest demand destruction, but over the past 12 months, the Southwest has been in striking distance of year-ago levels.
While most point to sliding gasoline demand on the West Coast, the Pacific Coast region performed admirably in May falling 4.2% versus last year.
Based on the latest OPIS data, on a year-to-date basis same store sales are down by 5.3%. Individual regions range anywhere from down 3% to down just over 6%.
Year-on-year market share in May 2024 saw mostly minor shifts between branded and unbranded stations with unbranded stations in the U.S. grabbing a bit more market share against the branded outlets and perhaps to a lesser extent some of the big box retailers thanks to relatively calm retail gasoline prices.
During May 2024, unbranded stations in the U.S. garnered 56.09% of the market, compared with 55.58% during the same month a year ago. Meanwhile, branded market share slipped from 44.23% in 2023 to 43.69% in the recently completed month.
Although some of the big box retailers did see a bit of market share erosion, those, along with some of the grocery chains, remained some of the most efficient sites in the U.S., selling quite a bit of fuel considering much lower station counts than the brands and some of the large regional chains.
Buc-ees, Costco and Sams Club had the highest efficiency ratings, according to OPIS AnalyticsPro data, but in all three cases, efficiency was down nominally from a year ago H-E-B, Wal-Mart and BJ’s all saw efficiency gains, but even with efficiency figures north of 6, they are still about one-third that of Buc-ees. Kroger, Ingles, Frys and Fred Meyer rounded out the top 10 in efficiency in May.
Costco maintains its spot as the most aggressive when it comes to pricing, as the average Costco price was 32.9 cents below the local average, which is just over 2 cents more of a discount than last May. One of the bigger movers in average price discounts versus the local average was California-based Flyers. There are 23 brands in the OPIS database priced 25 cents below the local average, increasing the discount from last year by 18 cents.
With May 2024 priced several cents higher than May 2023, big box retailers and some chains used it as an opportunity to become more aggressive on street price.
Fun fact of the day: refiners, generally speaking, don’t make gasoline.
Drivers may think that crude oil goes into a refinery and gasoline comes out.
That’s only partially correct. Think of making gasoline as making a cake. There’s flour, eggs, milk, and oil in a cake recipe. Gasoline is similar in that it has multiple components that make up the gasoline recipe. At the end of that recipe you have two types of almost finished gasoline called Conventional Blendstock for Oxygenate Blending and Reformulated Blendstock for Oxygenate Blending.
To these blendstocks other liquids are added to make the substances that fuel our carpools, take us to grocery stores and get our families to their summer vacations. And, mostly, that final mixology does not happen at the refinery level.
The Mixers: CBOB and RBOB
To reiterate, most of the gasoline produced by refineries is actually unfinished gasoline or gasoline blendstock.
Blendstocks are blended with other liquids, such as ethanol, to make finished gasoline.
Most of the finished gasoline in the US contains 10% ethanol.
The blendstocks are a mix of components such as butane, reformate and FCC gasoline, which can be combined in different ways to reach needed specifications.
Conventional Blendstock for Oxygenate Blending (CBOB) is a blendstock that’s combined with ethanol to get E10 gasoline.
Reformulated Blendstock for Oxygenate Blending (RBOB) becomes reformulated gasoline (or RFG) after blending with ethanol.
What’s the Difference Between RBOB and CBOB?
Reformulated gasoline is required in certain areas to reduce smog per Clean Air Act amendments. RFG is required in cities with high smog levels and is optional elsewhere. RFG is currently used in 17 states and the District of Columbia. About 25 percent of gasoline sold in the US is reformulated.
Many of the RFG areas are in the mid-Atlantic and Northeast. So, OPIS spot market editors see a lot more Reformulated Blendstock for Oxygenate Blending (RBOB) trading in the New York Harbor region.
In the Gulf Coast spot market, Conventional Blendstock for Oxygenate Blending (CBOB) tends to be the most liquid product because there are fewer areas requiring RFG in that region.
Where Does Ethanol Enter the Picture?
Ethanol is like the icing on that cake made from gasoline. (Eww. Please don’t eat it.)
The use of ethanol is largely linked to the advent of the Renewable Fuel Standard (RFS) program, which Congress enacted to reduce greenhouse gas emissions, expand the US renewable fuels sector, and diminish US reliance on imports.
Ethanol isn’t blended into gasoline blendstock at the refineries, largely because ethanol can’t be transported through pipelines. It would damage them. Strong stuff!
Instead, ethanol is most often blended in at the rack, closer to its ultimate destination. That’s why you’ll often see ethanol listed along with gasoline and diesel in rack prices.
Ethanol serves to boost octane levels in gasoline, which can be helpful. But it also raises Reid Vapor Pressure (RVP), which can be tricky.
RVP measures the volatility in gasoline and is subject to seasonal mandates. So, blending ethanol can be complicated during summer months, when people are looking for lower-RVP gasoline.
Sometimes, detergents or other additives are blended into gasoline before it hits retail stations—those additives are a way that fuel brands differentiate themselves with customers.
Happy baking!
As the weather warms up with summer on the horizon, US gasoline prices will likely follow the season’s temperatures and start the cyclical rise as well.
Why does gasoline typically cost more in warmer weather months?
One of the biggest reasons for the price change is RVP, or Reid Vapor Pressure. It’s a measure of gasoline volatility. For those technically inclined: the number is the absolute vapor pressure of a liquid (in this case gasoline) at 100°F (37.8°C) as determined by the Reid method. In layman’s terms, it’s the ability of gasoline to vaporize so it can be used in your car’s engine – which changes with the outside air temperature.
That seasonality is a big part of the reason gasoline gets more expensive as temperatures increase. The lower the RVP, or the lower the volatility, the more expensive it is to make on-road gasoline. The summer months, when ambient temperatures are higher and gasoline evaporates quicker, require a lower pressure. In colder temperatures, gasoline with a higher RVP is preferred for winter driving.
Apart from car performance needs, the US Environmental Protection Agency, or EPA, sets standards for summer RVP levels to reduce emissions from evaporating gasoline, which can contribute to smog.
Part of understanding RVP is understanding how gasoline is made.
Gasoline isn’t just refined and ready to be put into your car’s gas tank. It must be blended with multiple components to make something that is able to be used on the road – like baking a cake with many different ingredients. And all those ingredients – or blending components in the gasoline-making world – must add up to a final product that you can put in your car, meeting all the specifications that make sure it’s up to snuff. And all those components affect the final product in different ways.
For example, take butane – a popular component for blending gasoline in wintertime. Butane is an inexpensive way to increase the octane (which means the resistance to knocking or uncontrolled ignition within a car’s engine) in your blend of gasoline. However, butane also increases the RVP level, so it is mainly used in the winter months, when RVP specifications are high.
So how does this affect the cost of gasoline, from the retail station to the wholesale racks to the big bulk gasoline markets?
Those less expensive (and sometimes more plentiful) blending components like butane, which can be used during cooler weather, help to keep the price of gasoline down at the pump. But as the weather gets warmer, some of those components aren’t going to be able to be used and more expensive options will have to be utilized.
Typically, consumers start to see prices head higher in the spring and early summer as blends make their way to the pump gradually as the weather warms – with timing that can vary by region. The change at your local gas station can depend on several factors besides the change in RVP, like local margins, competitive factors, etc.
But upstream, those changes start much sooner than they do in the retail sector. In the rack markets, where marketers go to load up their fuel trucks, usually the specification shift happens in spring as markets across the country start to supply the lower RVPs (LRVP). In 2024, OPIS Rack Reports will start to reflect LRVP starting as early as April 1 and continue through September 15 for most areas. The EPA mandates that terminals are fully switched over to summer-spec fuels by May 1, but refiners often start the process earlier.
Every city in the US is required to switch to a 9.0-lb. RVP gasoline in the summertime, with several areas across the country requiring even lower (and more expensive) RVPs. For example, the Sparks/Reno rack in Nevada will only show 7.8-lb. RVP products and the Detroit, Michigan, rack will only show 7.0-lb. RVP material.
Even further upstream from the rack markets, in spot markets, where large volumes of incremental material change hands (i.e. trades of 5,000 – 25,000 bbl or more), the RVP shift takes place even sooner.
As of March 1, 2024, California CARBOB gasoline has already moved to a 5.99-lb. RVP gasoline for the summer. East of the Rockies, Group 3 is showing an 8.5-lb. RVP specification, while Gulf Coast markets are showing a transitional, 11.5-lb. RVP grade product to help downstream customers blend tanks to lower RVPs but will see summer-spec gasoline appear in early March. Chicago and New York Harbor markets are still showing a winter-grade, 13.5-lb. RVP, summer grades of gasoline making their appearance later in March.
RVP transitions play a large role in the changing price of gasoline, as regulations must be met to have viable gasoline product for use at the pump. But there are a myriad of other factors that can mitigate or exacerbate any of those changes – including geopolitical influences, price movement of futures contracts, weather events, regional supply disruptions and refinery issues, to name just a few.
OPIS provides several tools to help keep abreast of the changing prices and regulations, such as the OPIS Spot Ticker, spot market reports, rack reports and retail data, as well as alerts for breaking news that can influence the price of gasoline.
If you are reading this, chances are good that you have recently started subscribing to one of our rack services or are interested in doing so.
“Cap and trade” is a regulation designed to reduce greenhouse gases by setting a firm limit – or cap – on emissions.
OPIS customer service super sleuth Regina Flake barely had time to put down her coffee when the call came in early Saturday morning….
Once fuel leaves the refinery gate, the next step in the price chain is the wholesale rack. (more…)
Buying fuel is confusing even for seasoned pros. We’re here to help.
The petroleum market features a slew of specialized fuel blends and no one-size-fits all requirement for what you can use — or where or when you can use it.
Whether you are new to the fuel industry or are already an expert, the words “spot,” “rack” and especially “basis” are terms that confuse even the most veteran buyer. There’s a good chance you or someone on your team may not be 100% sure what these words mean.
Why Is It Important to Understand These Fuel Pricing Basics?
Chances are you already have a fuel contract with a supplier in place. Maybe you are looking to set one up or modify one that already exists. Without a firm handle on what the difference is between futures, spot, rack and retail markets there’s a good possibility that you:
- Are unaware what the “cost basis” is in your fuel agreement
- Are not purchasing the right fuel for your area or paying too much for the fuel you buy
- Don’t understand what factors are making your fuel costs go up and down
Let’s clear up some confusion with a basic guide to pricing gasoline and diesel. Much of what you will learn here also applies to jet fuel, LPG and renewables.
Step One: Getting to Know the Futures Market
Before you can understand spot and rack prices, you need to understand the first piece in the downstream fuel puzzle: The New York Mercantile Exchange.
The industry commonly refers to this as the NYMEX or the Merc. Sometimes it is called “the futures market” or “the print.”
It’s a mostly electronic platform exchange, on which buyers and sellers can trade various fuel commodities — on paper — any time from a month from now to 18 months in the future. That’s why it’s called a “futures” market.
They call it a “paper” market because few, if any, physical barrels ever change hands. Trade volume is made up of contracts that transact among players.
From here on out, to reduce any further confusion, we’ll refer to it as the NYMEX. The NYMEX is possibly the most influential factor in the upward/downward movement of wholesale rack markets. Oil futures affect spot markets, then rack markets, then ultimately retail markets.
The first energy contract was launched in 1978. Since then, the Merc’s launched contracts for:
- Crude oil (CL)
- Natural gas (NG)
- Ultra-low-sulfur diesel (HO)
- Reformulated blendstock for oxygenate blending, RBOB (RB, a blendstock that takes the place of a gasoline contract)
These abbreviations are what you’ll see on the trading screen, so add them to your alphabet soup full of acronyms to memorize.
Thanks for the History Lesson But What’s In This for Me?
One word: Transparency.
The NYMEX really took off as a major factor in the U.S. petroleum market back in the 1980s because it was the only place refiners, suppliers, traders, jobbers, retailers and procurement end-users had full access to see the value of a commodity at any given time.
The transparency was generally not for real barrels of crude oil that you could turn into gasoline. Remember, this is mostly a paper market – physical delivery only occurs for 2% to 3% of all contracts on the current NYMEX. But, at that time, unlike today, there was no downstream price discovery.
So, the futures market became a place where fuel buyers or sellers could go to find a cost basis for fuel supply agreements. This is why, when we talk about the NYMEX, we start to introduce the concept of “basis.” More on that later…
Since the 80s, price transparency has extended to the spot market (the refinery level) and rack market (the wholesale level). We’ll dive deeper into those markets in the sections that follow. But, that clear level of transparency has always remained on the NYMEX.
In addition, the exchange is regulated by the CFTC (Commodity Futures Trading Commission), adding a level of accountability to every 1,000-barrel, or 42,000-gallon, contract traded.
The paper market is used to hedge physical fuel purchases – kind of like insurance for prices rising or falling, to protect the companies holding contracts from losses related to their physical energy business. But, for our purposes right now, the critical point is that it is the primary building block of
downstream gasoline and diesel pricing.
There are two other key elements about the futures market:
- First, the trades are anonymous.
- Second, and most importantly, the exchange guarantees counterparty performance. No chance of an Enron-like implosion here.
However, the Block Is Rarely Stable
Military conflicts, hurricanes, domestic refinery problems, fluctuations in domestic output abound. Often, the first trace of any breaking news is seen on the futures screen, because oil prices spike and dive.
Take a look at this chart to see how Hurricane Isaac sent futures flying and how the market volatility continued.
The NYMEX tends to react to big-ticket items, like:
- Currency market moves
- Geopolitical “saber rattling”
- OPEC decisions
- Supply reports, like the weekly U.S. inventory and production figures
- Refinery explosions
- Weather events
Sometimes the market “prices in” so-called fundamental factors. For example, if the U.S. government is expected to show crude stock supplies falling by a large amount, the market might slowly crawl higher in advance of the weekly inventory report as opposed to rallying sharply when expectations prove true. On the other hand, a quickly developing weather event can lead to immediate price swings.
And the market also responds to seasonal trends. For example, the RBOB market tends to peak ahead of summer driving season. The ULSD contract (a proxy for heating oil) will often spike on the first chilly fall day.
Some terminology you will hear when people talk about the market:
- Bullish – the market is rising
- Bearish – the market is weakening
- Oversold – the market is rising
- Overbought – the market is weakening
But, What Does This Mean in a Market That Trades ACTUAL Barrels?
The NYMEX is the first column in your price equation. If RBOB futures go higher, it will send gasoline prices up right through the fuel chain — unless the next link in the chain does something to counteract it.
Understand the fuel chain from start to finish with this helpful e-Book from OPIS.