8/27/2003

One way to lower gasoline prices is to double the margins (cash you have to put up) to trade a contract at the futures exchanges. That is why the futures prices fell yesterday. This acted to force out the small speculators looking to make a buck on the shortages and helped to "match" contracts. We are not out of the woods yet, but the woods are thinning. The problem is still out there because the "back months" (months other than Sep) rallied sharply. Today's API report will tell us something. Expect a "build" in crude due to refinery shutdowns due to blackout but a drop in gasoline. If gasoline supplies drop more than 3 million barrels the September contract could go crazy even with the margins. This futures market does indicate retail cash prices near term. Governments, state and Federal, could help by a temporary halt in taxes....BUT OUR GOVERNMENTS? Don't turn blue holding your breath.

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