Advisors Asset Management
By Matt Lloyd
March 11, 2012
Crude and gasoline have been in the press a great deal recently. Headlines touting the potential recession being exacerbated by high prices of crude and gasoline have also been met with statements about the need to regulate the speculators who are the ones to blame. We have mentioned our view on this several times over the last few weeks. Last week we mentioned a chart pattern corresponding with a negative backdrop that could push crude down in the short run. Consider the move in the Crude over the last five days.
Wednesday, a very profound headline came out of China that the price of its regulated gasoline and diesel prices were going to be reduced by about 3%. Though this may be an announcement that ultimately stabilizes crude prices due to the sheer size of its economy, in the short term it could weigh down the price of crude.
Domestically, we have seen a similar move in gasoline, though the spread between crude and gasoline are still significantly wider. This leaves us with yet another reversion to the mean as gasoline appears to want to drop while crude may drop slightly or stabilize.
From this chart, gasoline appears high relative to the overall trend of crude, which brings us to the political aspect issue.
Whether fair or not, the price of crude has risen 129% since January 2009 and gasoline has risen 101%. This will become a hot topic as the election comes closer. Though crude and gasoline aren’t necessarily comparing apples to apples, there has been a decent correlation over the last eight years. As such, there are far more factors that have coincided with the run-up in crude and gasoline, least of which is the global economic recovery. Though we would agree it is a stealth such rebound, we also recognize many aren’t sure the recovery has truly taken place. Thus the blame game looks to be ratcheted up in short order. It reminds us of the anonymous quote: “Expecting the world to be fair to you because you are a good person is like expecting the bull not to charge because you are a vegetarian.”
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