A story about Diesel prices

Today, Gasoil (diesel) and Heating Oil completed their mean reversion back to their 200 week moving average. This was prompted in this weekends edition of Macro Extremes.

They join Crude Oil and Natural Gas who achieved this milestone a couple months earlier.

However, ‘achieving’ mean reversion doesn’t translate to a ‘Buy’ signal.

This observation is a reminder to not have chased prices higher, especially at the stratospheric levels seen at the onset of the Russian-Ukraine war.

You would think lower fuel costs should be good for truckers and courier services, however there is a perverse trend that diesel prices lead the stock prices of ‘transporters’ lower.

This is a result of their fuel forward purchases, hedges and a lag in working off inventories.

This is terrific for today’s spot buyers.

Gasoil has halved since that high.

Although, falling Gasoil prices translates into predicting weakness in the Dow Jones Transports Index,

and a lower transports index usually mimics a decline in the S&P 500,

which coincides with weakness in the U.S. Dollar and broadly lower commodity prices,

which portends lower interest rates (perhaps the 2 year) yields,

which might be a positive for technology stocks.

But amongst this story telling, Gasoil, Heating Oil and Crude Oil will find a floor before it becomes mainstream news.

May 3, 2023

by Rob Zdravevski


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