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American Automobile Fuel Consumption Debate

saMvaad

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Comments

Mike

For short-term movements in front-month gas, the answer is almost always "weather." First week of January is in and was decidedly mild (compared to averages). Forecasts are for more mildness. There is a Index posted by Dominion that forecasts energy usage 10-days out. The past few weeks this has been routinely at 30% below average. This all points to weak demand.

I would also say that there is a cascade effect. Many shops probably loaded up on Jan-Feb for fear of spikes ("Better to be long and wrong, than short and fired.") Now as the usage forecasts become clearer, they can sell some excess, which further drives things down. Storage numbers for nearly all of Q4 were not bullish for gas, but traders bid it up anyways. Plus, the spec longs just may no longer see the upside.

Keep in mind that you see "front-month" prices. The back of the curve (say 2008, 2009) has actually been slightly up over the past few weeks. Gas for next Jan-Feb is still over $11.

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