In the Tank
WSJ.com - Ahead of the Tape
September 1, 2005; Page C1
Shortly after Hurricane Katrina struck, Wall Street economists were musing about what might happen to the U.S. economy if gasoline hit $3 a gallon nationwide. Now, $3 gas may be a foregone conclusion.
With Gulf of Mexico refineries looking as if they will be bailing out for weeks, and with power disruptions restricting the flow of crude oil to Midwestern and East Coast refineries, gasoline futures have shot higher on the New York Mercantile Exchange. Yesterday, regular gasoline for delivery in October climbed six cents to $2.26 a gallon. That was up 40 cents from Friday's close. The September contract, which expired yesterday, rose 14 cents to $2.61.
The average price for the September gasoline contract last week was $1.91 a gallon. The average U.S. price of regular at the pump was $2.61 a gallon, 70 cents higher. Applying that premium (which goes to taxes, transportation costs, gasoline-station profit margins and so on) to the October contract's close yesterday yields a price of $2.96 nationwide.
So far, regular gasoline prices haven't registered the effect of the jump in futures prices. The American Automobile Association reported U.S. prices on Tuesday averaged $2.62 a gallon, only fractionally higher than last week's average. Yesterday, however, anecdotal reports of gas stations raising prices were mounting, and by next week prices should be significantly higher.
"All these gains since Monday, I figure it's going over $3.25," says John Kilduff of Fimat Futures. "There will certainly be areas that will be seeing $4 gasoline, in my view."
Hurricane Katrina came at a particularly bad time. Refineries were already straining to keep up with demand, a situation that contributed to production problems and higher gasoline prices.
"You take a market that's already running on the edge of ragged and you wallop it -- it's not a pretty sight and it will affect consumer spending," says Bianco Research strategist Howard Simons.
Investors appear to be taking all of this in stride, choosing to focus on the possibility that the Federal Reserve will hold off raising rates rather than the prospect of high gasoline prices cutting into consumer pocketbooks and company profit margins. The Dow Jones Industrial Average has risen this week.
As pump prices rise and investors start to feel the effects of Hurricane Katrina firsthand, maybe they will rethink the situation.
September 1, 2005; Page C1
Shortly after Hurricane Katrina struck, Wall Street economists were musing about what might happen to the U.S. economy if gasoline hit $3 a gallon nationwide. Now, $3 gas may be a foregone conclusion.
With Gulf of Mexico refineries looking as if they will be bailing out for weeks, and with power disruptions restricting the flow of crude oil to Midwestern and East Coast refineries, gasoline futures have shot higher on the New York Mercantile Exchange. Yesterday, regular gasoline for delivery in October climbed six cents to $2.26 a gallon. That was up 40 cents from Friday's close. The September contract, which expired yesterday, rose 14 cents to $2.61.
The average price for the September gasoline contract last week was $1.91 a gallon. The average U.S. price of regular at the pump was $2.61 a gallon, 70 cents higher. Applying that premium (which goes to taxes, transportation costs, gasoline-station profit margins and so on) to the October contract's close yesterday yields a price of $2.96 nationwide.
So far, regular gasoline prices haven't registered the effect of the jump in futures prices. The American Automobile Association reported U.S. prices on Tuesday averaged $2.62 a gallon, only fractionally higher than last week's average. Yesterday, however, anecdotal reports of gas stations raising prices were mounting, and by next week prices should be significantly higher.
"All these gains since Monday, I figure it's going over $3.25," says John Kilduff of Fimat Futures. "There will certainly be areas that will be seeing $4 gasoline, in my view."
Hurricane Katrina came at a particularly bad time. Refineries were already straining to keep up with demand, a situation that contributed to production problems and higher gasoline prices.
"You take a market that's already running on the edge of ragged and you wallop it -- it's not a pretty sight and it will affect consumer spending," says Bianco Research strategist Howard Simons.
Investors appear to be taking all of this in stride, choosing to focus on the possibility that the Federal Reserve will hold off raising rates rather than the prospect of high gasoline prices cutting into consumer pocketbooks and company profit margins. The Dow Jones Industrial Average has risen this week.
As pump prices rise and investors start to feel the effects of Hurricane Katrina firsthand, maybe they will rethink the situation.
posted by Marcel at 2:21 AM
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