PETROLEUM SPREADS AND FINANCIAL TRENDS © Leo Haviland December 10, 2012

Petroleum is a key part of the broad GSCI and many other commodity indices. Of course not all commodities travel in the same direction, for they have diverse supply/demand situations. And marketplace timing relationships are not precise; commodities (even within a specific sector such as petroleum) do not all embark in a bull or bear trend at or around the same time. The overall petroleum complex, a key chapter in the commodities in general story, nevertheless has marched more or less alongside the S+P 500.

Each of the assorted petroleum spreads has its own supply/demand variables. Picture a front-to-back intramarket NYMEX crude oil spread or a US Gulf Coast gasoline crack (refining margin) spread. An analytical connection portraying a relationship between petroleum spreads to the S+P 500 and economic recovery (decline) and Federal Reserve policies may seem to be a fairly long stretch.

Yet the price and time movements of one or more important petroleum spreads often “confirm” or warn of changes in outright price trends in the overall petroleum price complex (and its individual marketplaces such as Brent/NSea crude oil, or US Gulf Coast gasoline). So in a web where flat price petroleum patterns generally (roughly) coincide with those of the broad GSCI, trends in oil spreads offer guidance to the broad GSCI trend. Given the rather close bull (and bear) shifts between the GSCI and the S+P 500, petroleum spreads therefore sometimes can offer insight into S+P 500 trends (and into US and international economic growth trends as well). And so Federal Reserve policies tie into some petroleum spread marketplaces. Keep in mind, however, that perceived connections between petroleum spreads and these other domains are only guidelines, and they are not unchanging.
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Petroleum Spreads and Financial Trends (12-10-12)
Petroleum Spreads and Financial Trends (charts, 12-10-12)