11/15/2004

HFS--Crude oil down $1.27; unleaded off four cents. Don't hold your breath for retail. The reason it is outrageous for gasoline prices to stay high is that all oil companies hedge in the futures market. Right after they buy they protect themselves with a sell stop under the market. This means if they bought actual product for $50 a bbl they will sell it at $49.80 and not lift the hedge til it is convenient or they take the product. It makes no difference how low the price goes, they buy at $50 and sell at $49.90 so if crude drops to $40 on delivery they have only "lost" twenty cents per bbl. Twenty cents represents around a penny a gallon of gasoline. Yes, Virginia, we are taking it in the rear one more time.

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