Rising gas prices have been a painful development as the world grapples with soaring inflation.
The dramatic increase has impacted everyone, not just motorists filling up their tanks.
For example, higher gas prices means that the cost to transport goods is more expensive. And the consumer will eventually bear the burden of these higher costs.
And if you’re wondering whether there is any relief in sight, you won’t find many signs of hope from the mainstream media.
The mainstream narrative around gas prices is that they’ll continue to rise in North America over the summer.
Between expected higher demand for gas when the weather gets warmer – and the more expensive formula that summer gasoline requires – the outlook is for prices to continue to climb.
But the price charts for Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline tell a different story.
RBOB is a technical way of referring to the fuel that we pump into our cars, trucks, and motorbikes.
Before I show you what I see on the price chart for RBOB gasoline futures, I want to clarify that these prices are not a direct reflection of what you can expect to pay at the pump.
The price you’ll pay at your local gas station is greatly marked up.
After all, there’s costs to transport the gas to the pumps in the first place… not to mention having to account for taxes and building in a profit margin so that it remains worthwhile for gas stations to sell their products.
Now, let’s look at a price chart of RBOB gasoline…
I outlined the bearish head and shoulders pattern that the market has traced out.
This classic reversal pattern frequently forms at both major market tops and market bottoms.
It has three key defining features – the left shoulder, the head, and the right shoulder.
The pattern is complete once prices break and close below the neckline. The neckline (blue line) is a trendline that connects the bottom points of the left and right shoulders.
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The final component of this pattern is the neckline measurement, which is used to come up with a target for this pattern once it breaks out.
The neckline measurement is taken by drawing a straight line from the top of the head to the neckline (red lines). The length of this line is how far we can expect prices to travel once the pattern is complete.
In the case of this head and shoulders pattern, it completed on June 29.
And the neckline measurement in RBOB gasoline comes in at just above $3 a gallon.
While I’m skeptical about exactly how that will translate to prices at the pump, it would bring the price of gas back to where it was in March and April.
That’s approximately an 18% move, which makes trading this head and shoulders pattern an enticing proposition for commodities traders.
Happy trading,
Imre Gams
Analyst, Market Minute
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– Charles P.
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