The spread between crude oil and gasoline futures show either the oil companies have trouble in their cards or the crude oil is ready to plunge below $50 a barrel
Bernie Snyder
Oct. 16, 2007

Smart traders always look at the spreads. The spreads can be the price difference between nearby and far out contracts. The spreads can also be between crude oil and its derivatives especially the gasoline.

The crude oil futures are rising up exponentially. At the same little movement is seen in the gasoline futures. The gasoline price at the retail pumps has barely budged compared to a $88 a barrel oil.

From the trading stand point either the crude oil is right or the gasoline is right. If crude oil price is based on real demand and supply, then ethanol and other bio-fuels are depressing the price of gasoline futures and at retail pumps. This translates into real profit squeeze for the large oil companies.

On the other hand, if gasoline price manifest the real demand and supply situation, then crude oil speculators have lesson to learn. Manipulation of open free markets in any commodity is very dangerous. The hunt brothers learnt their lesson trying to corner silver in early eighties. In 1907 some copper speculators learn their lesson. This may be the time for a bloodbath for hedge funds and private equity funds.

Based on what the economies of the world is telling us, we can conclude that speculators are artificially trying to corner the crude market. If US demand is slowing, there is no reason for oil to go up 2% in price every month on the average.

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