Gas Trade Turns the Tables

The selling level of crude oil is traditionally the benchmark that determines the prices of gasoline and distillates when they reach the open market.

This year, in a reversal of roles, gasoline futures on the New York Mercantile Exchange appear to be dictating the terms for the price of crude.

As a result, this new relationship may be setting the price for crude oil and gasoline at artificially high levels. Traders with exposure to crude and gasoline futures may be subjecting themselves to unnecessary volatility and price risk, whereas refiners like Frontier (FTO Quote), Tesoro (TSO Quote) and Valero (VLO Quote) are well positioned to profit from the high energy prices.

Reformulated gasoline recently closed at $1.96 a gallon, up more than 27% from its 2007 low of $1.54 on Jan. 18. Crude oil has recently been trading near the $57-a-barrel range, up nearly 14% since the first of the year.

A confluence of issues is making this year different for energy traders. First, gasoline demand was high during the first 10 weeks of the year, which generally isn't a period for Americans to hit the open road.

U.S. drivers used 9.1 million gallons of gasoline a day from Jan. 1 through March 9, a 2.8% increase over the same period in 2006 and 12.8% higher than the same time five years ago, according to figures from the Energy Information Administration.