Why Gas Prices Fell ?
Source: The King Report, 22 September 2006
In yesterday's Wall Street Journal, Section C, there is a very
interesting item in the article headlined "Some Investors Lose Their Zest
For Commodities." The article notes that over that past few months,
commodity funds have been liquidating commodity holdings. But here's the
stunner:
"Consider the Goldman Sachs commodity index, one of the most
popular vehicles for betting on raw materials. In July, Goldman Sachs
tweaked the index's content by cutting its exposure to gasoline. Investors
tracking the index had to adjust their portfolios accordingly -- which sent
gasoline futures prices tumbling."
Prior to Goldman's revision of the
Goldman Sachs Commodity Index
in July, unleaded gas accounted for 8.45% (dollar weighting) of the GSCI.
|
GSCI Components and Dollar Weights (%) (July 15, 2005) |
|
Energy |
76.26 |
Industrial Metals |
6.18 |
Precious Metals |
1.74 |
Agriculture |
11.16 |
Livestock |
4.66 |
|
Crude Oil |
29.55 |
Aluminium |
2.56 |
Gold |
1.56 |
Wheat |
2.51 |
Live Cattle |
2.51 |
|
Brent Crude Oil |
14.53 |
Copper |
2.23 |
Silver |
0.18 |
Red Wheat |
0.90 |
Feeder Cattle |
0.67 |
|
Unleaded Gas |
8.45 |
Lead |
0.23 |
|
|
Corn |
2.74 |
Lean Hogs |
1.47 |
|
Heating Oil |
8.78 |
Nickel |
0.70 |
|
|
Soybeans |
1.92 |
|
|
|
GasOil |
4.95 |
Zinc |
0.46 |
|
|
Cotton |
0.96 |
|
|
|
Natural Gas |
9.98 |
|
|
|
|
Sugar |
1.23 |
|
|
| |
|
|
|
|
|
Coffee |
0.70 |
|
|
| |
|
|
|
|
|
Cocoa |
0.19 |
|
|
Now unleaded gas is only 2.30%.
|
GSCI Components and Dollar Weights (%) (September 22, 2006) |
|
Energy |
70.41 |
Industrial Metals |
11.20 |
Precious Metals |
2.35 |
Agriculture |
11.18 |
Livestock |
4.87 |
|
Crude Oil |
30.94 |
Aluminium |
3.44 |
Gold |
2.07 |
Wheat |
2.83 |
Live Cattle |
2.65 |
|
Brent Crude Oil |
14.89 |
Copper |
4.77 |
Silver |
0.27 |
Red Wheat |
1.12 |
Feeder Cattle |
0.73 |
|
Unleaded Gas |
2.31 |
Lead |
0.37 |
|
|
Corn |
2.57 |
Lean Hogs |
1.48 |
|
RBOB Gas |
2.35 |
Nickel |
1.33 |
|
|
Soybeans |
1.42 |
|
|
|
Heating Oil |
8.22 |
Zinc |
1.29 |
|
|
Cotton |
0.91 |
|
|
|
GasOil |
4.59 |
|
|
|
|
Sugar |
1.42 |
|
|
|
Natural Gas |
7.11 |
|
|
|
|
Coffee |
0.69 |
|
|
| |
|
|
|
|
|
Cocoa |
0.20 |
|
|
This means that commodity funds had to sell 73% of their gasoline futures
to conform to the reformulated GSCI.
But it wasn't only commodity funds that were forced to sell. Goldman's
decision to lower the weighting of unleaded gasoline in its commodity index
and NOT to roll any portion of the GSCI attributable to New York Harbor
unleaded gasoline created problems for arbitrageurs and commercial traders
as well.
Here is the Goldman
press release:
"On July 12, 2006 Goldman, Sachs & Co. announced that, for the roll
occurring in September 2006 (the September Roll) in relation to the Goldman
Sachs Commodity Index (GSCI) futures contract expiring in October 2006, it
would roll the existing portion of the GSCI that is attributable to the
Reformulated Gasoline Blendstock for Oxygen Blending (RB) futures contract
on the New York Mercantile Exchange but would not roll any portion of the
GSCI that is attributable to the New York Harbor Unleaded Gasoline contract
(HU) contract into the RB contract."
Goldman's changes probably induced arbs, commercial hedgers, and other
traders to sell September and October unleaded gasoline future contracts to
avoid possible (settlement, delivery, etc.) problems. September futures
expired in August; October contracts expire September 29. So unleaded
gasoline prices collapsed in August and September.
|
