Why Are Gas Prices So High? Here Are A Few Reasons

Why Are Gas Prices So High?  Here Are A Few Reasons

As an oil trader, I would tell my friends when I get upset about how much it costs to fill up my car.  You know prices are out of control.  Over the years,  I have heard and experienced every excuse in the book for high gas prices.  During my career as a NYMEX crude oil Pit Trader, there have been many real issues for the spikes in gas prices – such as the Gulf War, strikes in volatile oil producing countries, natural disasters like hurricanes, refinery shut downs, and countless speculation issues.

There a few valid reasons why gas prices have spiked again.  Yes, global demand is up.  However, I do not think it is up enough to triple the cost of crude oil and gas that we are seeing.

Electronic trading has a tremendous impact on crude and gas prices.  Once the Exchanges went electronic, it allowed every fund in the world to trade products that were never before on their radar, and now there is too much money coming into markets that were never developed for this level of inflow.  The Energy markets have become more of a financial instrument rather than the supply and demand market that they once were.


Another major factor for this spike is the refinery run rates.  I was in the crude oil pit in 1996, the average annual run rate was 94.1%  In 2001, it was 92.9%.  2006, it was 89.7%.  2011, it had dropped to 86.3%.  Anyone can see this trend and the direction it continues to head.

I remember when the El Paso trader would come into the options ring and buy a large volume of calls.  Then a day or two later there was an “unexpected” pipeline cleaning.   With this happening with the run rates, what incentive do they have to lower gas prices?  The lower run rate works in their favor.

There has not been a new refinery built in the United State in decades.  Additionally, more and more existing refineries are old and  shutting down.  Yet gas prices were an avoided topic by both parties this past election.  It is astonishing that this issue was not a significant part of either party’s platform.

Once again, it is clear that the powerful lobbyist in Washington has the nation’s leaders in their hands.  I always laugh when the gas companies say they are not the issue when it comes to prices.  They always seem to have record profits.

Most people keep their eye on crude oil prices.  However, the fact is crude could drop like a rock and gas prices can remain high.  The refineries need to be regulated and brought back up to full strength.  The roll over from winter to summer gas should not take as long as it does, and it is time for new refineries to be built in the East Coast, Midwest, and West Coast to take the pressure off the consumer.

Take a look at the link below at an interview I gave to CNN a little over 10 years ago.  War with Iraq, 2 million barrels off line and look where oil, gas and heating oil was trading – and you will understand just how off today’s prices are!

I look forward to reading your thoughts on this topic in the comment section!

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Trading Tip #10 – Having a Bad Streak? Try This …

Trading Tip #10 – Having a Bad Streak?  Try This …

All traders go through a bad streak now and then.  The key is to keep them small and manageable.  I started most days in the pit flat.  My thought process was there is enough to trade during the day.  Staying up all night when there was no electronic system and waiting for a call from London was just throwing the dice.  Once NYMEX electronic trading system was on at night, I still felt that coming in to trade after a good night sleep was more important than what I could make staying up all night.

thumbnailHowever, there were those times where just everything I did once the opening bell rang was wrong and I would find that I dug myself into a $5,000 hole (which was my first limit when I would walk out of the pit and regroup.)  There were countless times I would chip my way back to even for the day.  As a trader,we know  that sometimes you win , sometimes you lose and at times  breaking even can be a great  day.

This leads me to Trading Tip #10.  If you are having a bad streak of your own, try doing what I have done countless time.  Chip your way back to even and let it rest.  Even before my first trade, I would write on the back of my trading Pad “(-$5000)” and then, when the bell rang, I would trade as if I was down.  This way I would be more selective on my trading and I would just start chipping away.  As I chipped away, I would adjust my loss numbers on the back of my pad .   When I reached my breakeven point, I would call it a day and walked out up $5000.  Over time, my confidence came back and I went back to my normal style of trading – as I spoke about in Trading Tip #9, which you can read (or reread) here.

Trading has always been, and will always be, a mental game.  Sometimes setting yourself up into a different mental state can be a great way to protect yourself from some of those  bad streaks, and it can help you be a better trader.

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Better Off? Electronic Trading vs. Open Out Cry

As the only exchange  Board member in the world that voted against electronic trading, I ask you: As traders and investors are we better off now with electronic trading then with open out cry?Electronic trading volumes are down. They got want they asked for – killing open out cry –  all the exchanges are done with their IPO”s  and people have cashed out.  What’s next for the markets?

Now what is next . . .

Exchange Weekly Volume Tracker as of 11/30

CME volumes were down -16% y/y (+12% m/m) in November; with IR -22%, Equity Index -16%, Energy -17%, FX -5%, Comm & Alt Invst -2% and Metals +11%.

ICE Futures volumes were down -8% y/y (-4% m/m). Swap Futures volumes were down -4% y/y (-9% m/m). CDS weekly cleared volumes were down -29% y/y (-48% m/m) in the US and -40% y/y (-31% m/m) in Europe.

US Cash Equity volumes were down -17% y/y (+2% m/m); with Tape A -17%, Tape B -31% and Tape C -7%. US Options volumes were down -21% y/y (+3% m/m).

European Cash Equity volumes were down -23% y/y (+1% m/m) at DB1, -22% y/y (-11% m/m) at Euronext and -6% y/y (-4% m/m) at LSE. Derivatives volumes were down -31% y/y (-5% m/m) at Eurex and  -1% y/y (+24% m/m) at LIFFE.

Asian Cash Equity volumes were down -9% y/y (+4% m/m) at HKEx, but up +7% y/y (+12% m/m) at SGX. Derivatives were down -8% y/y (-3% m/m) at HKEx, but up +22% y/y (+8% m/m) at SGX.

Latin American Cash volumes were up +12% y/y (+3% m/m) at Bovespa and +12% y/y (-4% m/m) at BMV. Derivatives were down -2% y/y (-11% m/m) at BM&F and -51% y/y (-34% m/m) at MexDer.

CME Group IR through Nov 30

MTD ADV: 4,573,645 (21 days)
Y/Y: -21.81%

QTD ADV: 4,379,664 (44 days)
Y/Y: -7.39%

CME Group Equity Index through Nov 30

MTD ADV: 2,685,385 (21 days)
Y/Y: -15.81%

QTD ADV: 2,516,519 (44 days)
Y/Y: -20.02%

CME Group Energy through Nov 30

MTD ADV: 1,504,996 (21 days)
Y/Y: -17.34%

QTD ADV: 1,587,969 (44 days)
Y/Y: -6.83%

CME Group Others through Nov 30

MTD ADV: 2,281,271 (21 days)
Y/Y: -0.66%

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MF Global – My email to the CFTC

This blog was originally set to post on 10/31/12,  due to Hurricane Sandy and the issues that we faced on Long Island, New York, it was delayed.

The following was an email I sent to Bart Chilton on the eve of the MF global Collapse. The actions that were not taken by the CFTC and the CME added undue risk into the markets –  many traders and introducing brokers never recovered from being locked out . While John Corzine is a free man, and the board members of the CME and commissioners of the CFTC point fingers and have conflicting stories, they are still in positions of power.  The real question is ’What lies ahead for investors?’ The markets with cleared swaps are only getting more complicated to regulate and the speed in which events happen will only get faster.  We have seen over and over that the regulators are still behind on understanding the futures markets.

As a former NYMEX Board and Executive Committee member, as well as an investor, I am deeply concerned about what lies ahead. The meltdowns of the past will seem small and slow in comparison to what is about to happen in the near future The time has come to reform the CFTC and the SEC with people who understand the new markets and how they are traded.

My email to Bart Chilton clearly points out what I thought would happen and did –


I am sure you are up to your ears dealing with the MF Global issue . However, the Floor Traders both in Chicago and New York are being put in a position that is just unnecessary. They are not part of the issue, the funds should be in a seg account and they should be allowed to be moved quickly and with ease.

There is no more risk in these account then there were days ago and, if anything, the CFTC has caused all the accounts to have unlimited risk since they can not be managed by the traders. Liquidation only for these traders will, and can, do more harm in the markets. It will cause moves that are not with in the normal parameters of trading and many traders and companies could have major issues which could have easily been avoided .

In the end, none of the money in the traders account will provide help for the issues that MF Global now faces and lives will be destroyed.

Refco??? All the traders on NYMEX and CME got all their money back.  Can we all learn from the past to see where this is going and stop the pain to the people who had nothing to do with this?

This is the easiest part of the problem and the CFTC can and should handle this tomorrow.

I realize that many of the people you work with do not understand all clearing and exchange issue. However, after our conversations, I believe that you do and that you can see my point.

If I can help out in any way please let me know  .


David D. Greenberg

President, Greenberg Capital

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