In a brief period working on Wall Street many years ago I liked to go over and talk to the energy option traders who worked on my floor. It was a small group and the funny thing is that the group went out of business while I was there. This was the early 1990's and oil prices were low and not volatile enough to really justify a trading desk that only made money off of energy price volatility. It came to mind because I was just watching the change in oil prices today and as I was watching it the daily increase jumped to over +$10.75/bbl. Ten years ago next week the price of oil was under $12/barrel in total. They would typically measure the daily change in cents, not dollars, and certainly not tens of dollars. It's a little hard to get your head around.
but some back of the envelope math. 42 gallons of oil in a barrel. So today's price increase alone translates into at least +26 cents per gallon. It has to be more than that of course. A gallon of oil does not get refined into a full gallon of gasoline so right there you need to divide by something smaller than 42. Then it takes oil to get oil to market, by ship, rail, truck or whatever... eventually that gets translated into a price at the pump. So it compounds a bit. So unless it retracts quickly today's oil spike alone will translate to +30 cents? +40 cents per gallon?
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Follow that story: CNN has a short video piece on the bankruptcy filing in the City of Vallejo, CA.
but some back of the envelope math. 42 gallons of oil in a barrel. So today's price increase alone translates into at least +26 cents per gallon. It has to be more than that of course. A gallon of oil does not get refined into a full gallon of gasoline so right there you need to divide by something smaller than 42. Then it takes oil to get oil to market, by ship, rail, truck or whatever... eventually that gets translated into a price at the pump. So it compounds a bit. So unless it retracts quickly today's oil spike alone will translate to +30 cents? +40 cents per gallon?
***
Follow that story: CNN has a short video piece on the bankruptcy filing in the City of Vallejo, CA.
Null Space 6/6/08 2:58 PM C. Briem noreply@blogger.com http://www.blogger.com/profile/17713125800825892775 
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