Comment on the June 15 posting:  No reset to $3.79.  Reports of a reset to $3.69 yesterday that didn’t pan out.  I guess the retailers were thinking out loud, too.

Friday, June 24, 10:10AM:  A couple of related items today:

1.  Wholesale oil and gas prices really took a hit yesterday, putting the 0-cent margin price at about $3.30.  With prices way above that number, look for markdowns all weekend.  That’s a prediction!

2.  One big contributor to the drop in prices was Pres. Obama’s decision to release oil from the Strategic Oil Reserve.  While there is debate about whether or not this is a good idea from the point of energy security, in terms of manipulating the market, this was a great move.  Oil was already dropping in price this month, and this was the type of decision that will scare some of the speculators out of oil contracts, which should drop the price further, at least short term.  What Pres. Obama’s administration should do next is then buy back the oil at the cheaper price, which would make money for the taxpayer for once.

3.  In a way, this is all disturbing though.  Here is a nice quote by Robert Prechter (brought to my attention by Peter Atwater) that captures what I have been harping on for quite a while — that the energy markets are broken:  “There is an entirely different pricing dynamic for assets purchased for their fundamental utility value versus assets purchased for their investment potential. When the price of a good or service rises, fewer people buy it, and when its price falls, more people buy it. This response allows pricing to keep supply and demand in balance. In contrast, when the price of an investment rises, more people buy it, and when the price falls, fewer people buy it. This behavior is not an occasional financial market anomaly; it always happens.”  And this is our problem, as oil and gas has become an investment rather than a good.

4.  Which brings us to the news that federal regulators have started a new investigation into whether oil companies and refiners have manipulated markets, raising oil prices to their benefit.  My feeling about this is that they probably are not — that #3 above better explains what is going on. At the same time, because the markets are broken, it wouldn’t be difficult for oil companies and refiners to manipulate the market.  The solution, rather than arrest people for following the rules of a broken game, is to change the rules.  For example:  for any energy futures contract, the product must be delivered at expiration.  That is, if you buy an oil futures contract, you have to buy the oil when the future expires.  That will close the casino!   — Ed Aboufadel