WTI Crude was changing hands at $85 per barrel early Wednesday, more than 22% lower than where it was trading at the beginning of March. Frustratingly for U.S. drivers, the average price per gallon for regular unleaded is a partly 8.5% off its highs. These facts beg two questions: 1) Where does WTI go from here? and 2) What does it mean for gas prices?
In the attached video, trader Rich Ilczyszyn says the price of crude is going to get pressed to $75 in the next two to three weeks. Despite expecting another 11% drop, the founder of iiTrader.com thinks it's too late to jump in on the short side. That said, he's licking his chops at the idea of $75, a point at which he'd "back up the truck" and buy futures.
None of which does anything for people just looking to pay less at the pump. The U.S. has an ample supply of WTI Crude; we just can't refine it fast enough to drive gas prices lower. Ilczyszyn says the problem is due to a refinery network that's 20 or 30 years old. Because of that creaking system, the prices can't fall despite supply being ample and demand remaining static—a violation of economic law. Whatever the reason, "going lower in gasoline is not going to happen this year."
Dismissing the likelihood of potential good news for the American consumer, Ilczysyn returns to his WTI price target and trading view. It has little to do with fundamentals, no matter how disturbing the outlook in the Middle East continues to be. $75 is the low of 2011, which makes it support in 2012.
For commodity traders, charts trump all else. As a result, the bottom in crude isn't a boon for refiners, integrated plays, or anyone else. It's a trade exclusive to the futures pit. "That's where the Big Boys are," says Ilczyszyn. "They will buy against that technical level, period. I wouldn't do any other stocks that don't correlate with this particular trade."