Rattling sabers in Moscow are rattling oil markets worldwide. And, with it, are higher gasoline prices.
West Texas Intermediate Crude oil briefly traded above $105 per barrel on Monday with worries that Russia's natural gas lines would be disrupted should things get ugly in Ukraine. That, in turn, helped push gasoline higher. The April 2014 contract on the New York Harbor RBOB, the traded contract on wholesale gasoline, was at one point above $3.05 per gallon on Monday after opening at $2.98 per gallon.
John Stephenson, portfolio manager at First Asset Investment Management, believes the current run-up in energy prices offers a selling opportunity.
"I think it's a great time if you want to short gasoline futures to initiate a position," says Stephenson. He notes that the futures curve on the RBOB slopes downward; the March 2015 contract settled at $2.64 per gallon, $0.38 lower than where the April 2014 contract settled.
"The reason is there's lots of production growth," says Stephenson. "Of course, oil and gas prices move with geopolitical events. And this is certainly one of them."
However, Stephenson sees added future supply from Libya, Iran, and Iraq as ultimate lowering oil and thus gasoline prices. "That's going to boost production globally by roughly a million and a half barrels," says of the possible future supply. "Demand is only expected to increase by a million barrels a day for the world market. So, I think [price increase] is a temporary thing. I wouldn't worry about it."
"Bottom line, gas prices are coming down at the pump."
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, thinks that the short-term RBOB chart shows gasoline on the rise but the long-term chart backs up Stephenson's thesis.
"When you look in the short-term," says Ross, "you see a somewhat bullish picture based on this exogenous shock that we've seen and some other factors."
But, that changes on the longer-term. Ross believes the RBOB trades within a $1 range spanning from $2.50 on the low end to $3.50 on the upper end. Three previous tests of the $3.50 level failed, accorded to Ross.
"I would suspect we fail for a fourth time here," says Ross. "I would not be a buyer of gas unless, of course, you need it for your car, that is. But, from a speculative standpoint, I would be a seller, as well. But, just keep in mind commodities are very firm right now. So, let's not be too aggressive on the short side."
To see the full discussion on what's next for gasoline prices with Stephenson on the fundamentals and Ross on the technicals, watch the video above.
- Commodity Markets
- John Stephenson
- gasoline prices