The Energy Markets Smell Musky

Comment on the July 6 posting: Basically CORRECT, as prices continued to fall … slowly … towards $4 a gallon, particularly in Sparta.

Sunday, July 24, 2022, 4PM: The price of a barrel of oil closed at about $95 on Friday, compared to over $120 on June 8. Since early June, prices have been trending in the right directions for drivers, and that wicked set of hikes during the first week of June looks more and more like weird shenanigans in the futures markets rather than some sort of dramatic, permanent change in the price structure. I don’t have any secret inside information, but in following these markets for more than two decades, I’ve never seen such a big spike up in prices without their being an external event like a hurricane that knocks out capacity. We didn’t have that here, so my guess is that some traders were stuck in a “short squeeze”, where they had bet earlier in the spring that oil prices were going to go down, and when they went up, they had to balance their books by buying more oil and making it go up even more.

Here’s a coincidence that makes you go hmmmm. Oil topped out on June 8. Bitcoin, which had been holding steady around $29,000 for a month, then collapsed to $20,000 in two weeks (and oil went to $104). At least for Bitcoin, we have a good theory what happened. But these kinds of volatile moves can infect one market, and then another, and they often having little to do with what is actually happening in the economy.

In terms of the Gas Game, based on our calculations, we still have room to get from the $4.40’s right now down to $3.99 across the board. They are taking their time getting there, at least in west Michigan. I am predicting several more days of gas prices dropping, and we’ll see in a week where we are at. -EA