Kick Consumers While They're Down: Oil and Gasoline Diverge

In today's Ahead of the Tape column in the Wall Street Journal, Mark Gongloff focuses on the fact that gasoline prices have stopped going down for the time being.  This is highlighted perfectly by looking at the price charts of the oil and gasoline ETFs.  In the first chart below, we provide a one-year chart of USO (oil ETF) and UGA (gasoline ETF).  Even as oil prices have continued to fall in recent weeks, gasoline has diverged and gone higher.  The second chart looks at the year to date change of the two commodity ETFs.  As shown, USO is down 23% year to date, while UGA is up nearly 23%.  This divergence is not what the consumer needs right now!

 

 

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Comments

[Kosta]

Although your point is likely still valid, USO overemphasizes the divergence between crude oil prices and gasoline. Crude oil futures, particularly WTI futures, are in extreme contango. USO, holding a large portion of front month WTI futures, suffers a drawdown each month as these futures must be rolled forward. USO underperforms the price of WTI, as your chart two posts down illustrates. WTI itself may be broken as a benchmark for crude oil because of the extreme contango as well, as this FT article illustrates http://www.ft.com/cms/s/0/6cc84c30-f867-11dd-aae8-000077b07658.html

Not to say that gasoline prices may not diverged from crude oil prices, but USO is a poor measure for those crude prices.

[Antoine]

Kosta is right, the contango effect is exactly what I wanted to point out.

[dj]

I want thank Kosta for posting that link,it was very good info,plus i found post there about gold etf to the spot trading,,,,thx

[perry]

so should we invest in either of them? i've been in USO as it came down, time and time again. if i could reverse my timing i'd be rich.

my friends say gas prices are coming back down in the next 6 weeks. leads me to think i should stay out of both of them.

[steve]

CFTC Probes U.S. Oil Fund Over Price Moves

http://online.wsj.com/article/SB123570642570190633.html