Watch This Level On The Oil Charts

With Memorial Day having come and gone, the U.S. summer 2013 driving season has officially kicked off.  Surprisingly however, prices at the pump have not yet moved much higher.  Where at the beginning of May a gallon of U.S. regular gasoline coast a national average of $3.603, by end of the month it had risen just about 4 cents to $3.645.  While this lack of a gasoline price spike has and continues to be good for the consumer, one does have to wonder if and when gas prices could rise as the economic recovery continues, if ever so moderately.  Here’s my take on the level to watch for where prices of light crude oil could accelerate higher, which in turn would also push prices at the pump higher:

To start off, see the below chart from the U.S. Energy Information Administration.  The chart shows prices of retail gasoline and diesel from 1992 up to the present.  While gasoline prices dropped sharply in 2008 as the financial crisis hit, by May 2011 they were again fairly close to the levels from June 2008.

us gasoline prices multi year chart

If we compare the above chart of gasoline prices to the one of light crude oil below, the disparity becomes quite obvious.  Light crude oil, as here represented by the United States Oil fund (USO), cascaded lower from its 2008 top and found bottom in early 2009 as the broader U.S. stock market capitulated.  Unlike gasoline prices however, crude oil did not rebound as sharply and continues to trade in somewhat of a range.  While the USO somewhat distorts the difference in rebound between gasoline prices and crude oil, it does show that oil prices rebounded less.

USO multi year chart

For those looking for a level on the chart of the United States Oil fund (USO) that could signal an acceleration higher for light crude, and thus for U.S. gasoline prices, consider the area around $34 – $34.50.  A move above this area would constitute a break of the downtrend since September 2012 and the trigger of an inverse head and shoulders pattern, which is marked by the blue circles on the chart.

As a side note, please be aware that in a gallon of U.S. regular gasoline, the consumer ‘only’ pays about 65% for the oil.  The rest of the price (35%) is made up of refining and distribution costs and taxes.

uso daily chart


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